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There is a question where in we’ve been given the direct material price variance 215 Fav and direct material usage variance to be 45 Adv along with the other data and supposed to calculate the standard quantity for actual production.
How to differentiate if we have to add the favourable/adverse variance or substract it?
If a cost variance is adverse then the actual cost is higher than the standard cost. If favourable then the actual cost is lower than the standard cost.
The company does control it’s costs, but that does not necessarily mean that they are able to reduce them. For example, if suppliers increase the price of materials then the company has to pay more (if there is no alternative material available).
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