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The ABC Company acknowledges that by determining the standards against actually results is a way to determine potential problems. By using a standard cost system, company ABC purchases and uses 20,000 pounds of direct materials for their production in July. The actual cost of the raw material came to a total of $66,000. The materials quantity variance was $1,400 and the standard quantity of materials allowed for July production was 19,300 pounds.
Question 1: Determine the materials price variance for July. Furthermore, determine what the company may do in the next month to avoid using more than the allowed material weigth in the next month.
Question 2: Furthermore, explain why some companies only require that unfavorable variance be explained while many companies require both favorable and unfavorable variance be explained
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