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. $7.00 per hr. Predetermined overhead rate based on direct labor hours = $3.72 The January figures for purchasing, production, and labor are: The company purchased 236,000 pounds of raw materials in January at a cost of 78¢ a pound. Production used 236,000 pounds of raw materials to make 119,000 units in January. Direct labor spent 18 minutes on each product at a cost of $6.90 per hour. Overhead costs for January totaled $42,966 variable and $73,000 fixed. Answer the following questions about standard costs. New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct. What is the materials price variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.) Materials price variance

Answer 1

Calculation of Material price variance

12oz = 0.75 lb

4oz = 0.25 lb

Standard price per unit ($) = (1 * 0.63) + (0.75 * 1) + (0.25 * 0.88) = 0.63 + 0.75 + 0.22 = 1.6 per unit

Material Price variance = Actual quantity * (Standard price - Actual price)

Material price variance = 236000 * $(1.6 - 0.78) = $193520 (Favorable)

Materials quantity variance

The company bought 236000 lbs. of Materials @ 78 cent, or $ 0.78 per lb. to make 119000 units

Therefore, Standard Quantity to be used (SQ) = 2 lbs. X 119000 units = 238000 lbs.

Material quantity variance = Standard price * (Actual quantity - Standard quantity)

= $1.6 x (236000 - 238000) = $1.6 x 2000 = $ 3200 (Favorable)

Total materials variance:

Total material variance = Price variance + Quantity variance

Total material variance = $ 193520 (Favorable) + $ 3200 (Favorable) = $ 196720 (Favorable)