Direct materials quantity variance shows whether actual material usage was more or less than the standard amount for the actual production, valued at the standard price. It is calculated as (AQ − SQ) × SP, which you can compute using the given products: AQ × SP and SQ × SP. AQ × SP = 145,000 and SQ × SP = 152,000, so DMQV = 145,000 − 152,000 = −7,000. A negative result means you used less material than planned, which is favorable. Therefore, the direct materials quantity variance is 7,000 favorable.

In standard costing, you price and report COGS using a standard cost, then adjust for how actual costs compare to that standard. A favorable variance means actual costs were lower than the standard, so the amount is subtracted from the standard COGS to reflect the lower expense on the income statement. For example, if standard COGS is 100,000 and the favorable variance is 5,000, the COGS reported would be 95,000. If the variance were unfavorable, you would add it to COGS, increasing the expense. So the best description is that the favorable variance is subtracted from COGS.

Direct labor variance shows how much actual labor cost differs from the standard cost allowed for the actual output, and it can be broken into rate and efficiency variances. Standard hours for actual output = 35,000 units × 1 hour = 35,000 hours. Standard cost = 35,000 × $10 = $350,000. Actual cost = $374,400 for 36,000 hours. Total direct labor variance = 374,400 − 350,000 = $24,400 (unfavorable). Decomposing: - Rate variance = (Actual rate − Standard rate) × Actual hours = (374,400/36,000 − 10) × 36,000 = $14,400 (unfavorable). - Efficiency variance = (Actual hours − Standard hours) × Standard rate = (36,000 − 35,000) × $10 = $10,000 (unfavorable). The sum of rate and efficiency variances equals the total direct labor variance: 14,400 + 10,000 = 24,400 unfavorable.

Fixed overhead spending variance shows whether actual fixed overhead costs came in higher or lower than what was budgeted, focusing only on actual vs budgeted costs rather than how much overhead was allocated to production. Here, actual fixed overhead incurred is 21,000 and budgeted fixed overhead is 20,000. The difference is 1,000, and because actual costs exceed the budget, it’s unfavorable. So the spending variance is 1,000 U. The applied fixed overhead of 24,000 relates to the volume variance (how much overhead was allocated to production) and is not part of the spending variance.