Question

Waterways Corporation uses very stringent standard costs in evaluating its manufacturing efficiency. These standards are not “ideal” at this point, but the management is working toward that as a goal. At present, the company uses the following standards.

Materials
Item	Per unit			Cost
Metal		1 lb.			63¢ per lb.
Plastic		12 oz.			$1.00 per lb.
Rubber		4 oz.			88¢ per lb.
Direct labor
Item	Per unit			Cost
Labor		15 min.			$9.00 per hr.
Predetermined overhead rate based on direct labor hours = $3.62

The January figures for purchasing, production, and labor are:

The company purchased 218,100 pounds of raw materials in January at a cost of 79¢ a pound.

Production used 218,100 pounds of raw materials to make 110,000 units in January.

Direct labor spent 18 minutes on each product at a cost of $8.80 per hour.

Overhead costs for January totaled $30,265 variable and $74,000 fixed.

Answer the following questions about standard costs.

What is the materials quantity variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.)

Materials quantity variance

$

Neither favorable nor unfavorableFavorableUnfavorable

Answer 1

Units		110,000
Item	Per unit
Metal	1 lb.	110,000	lb	110,000	Pound
Plastic	12 oz.	1,320,000	oz	82,500	Pound
Rubber	4 oz.	440,000	oz	2,750	Pound
				195,250	Pound
Actual Quantity = 218,100 pounds
Units
Item	Per unit	Per unit in pound		Cost	Cost in pound for one unit
Metal	1 lb.	1 pound		63¢ per lb.	63¢ per pound
Plastic	12 oz.	0.75 pound		$1.00 per lb.	0.75¢ per pound
Rubber	4 oz.	0.25 pound		88¢ per lb.	22¢ per pound
					85.75¢ per pound
Materials Quantity Variance =	SP x (AQ – SQ)
=	85.75¢ x (218,100 - 195,250)
=	1,959,387.50¢	unfavorable