Poco Merchandising anticipated selling 30,000 units of a major product and paying sales commissions of $7 per unit

Computation of Cost Variance, if the company used a static budget for performance evaluations:

Material Quantity Variance = SP*(AQ-SQ)

= $7*(32,500-30,000)

= $17,500 U

Material price variance = $185,700-32,500*$7 = $41,800 F

Therefore,

Cost variance = $17,500 U - $41,800 F= $24,300 F

Computation of Cost Variance, if the company used a flexi budget for performance evaluations:

Budgeted Sales = 30,000 units

Budgeted Commision = $7 per Unit

Actual Sales = 32,500 units

Sales commision at budgeted Rate = 32,500*$7 = $227,500

Actual Sales commision = $185,700

Cost Variance = $227,500 - $185,700 = $41,800 F