If a company has a standard cost of $5 per unit and the actual cost is $6 per un

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Question: If a company has a standard cost of $5 per unit and the actual cost is $6 per unit, what type of cost variance is this?

Options:

Correct Answer: Unfavorable Variance

Solution:

This is an unfavorable variance as the actual cost exceeds the standard cost.

If a company has a standard cost of $5 per unit and the actual cost is $6 per unit, what type of cost variance is this?

If a company has a standard cost of $5 per unit and the actual cost is $6 per unit, what type of cost variance is this?

Step 1: Identify the standard cost, which is $5 per unit.
Step 2: Identify the actual cost, which is $6 per unit.
Step 3: Compare the actual cost to the standard cost.
Step 4: Determine if the actual cost is higher or lower than the standard cost.
Step 5: Since $6 (actual cost) is greater than $5 (standard cost), this indicates a negative difference.
Step 6: Conclude that this is an unfavorable variance because the actual cost exceeds the standard cost.

Cost Variance – The difference between the standard cost and the actual cost, indicating whether the costs were higher or lower than expected.
Unfavorable Variance – Occurs when actual costs exceed standard costs, indicating a negative impact on profitability.