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.

Waterways Continuing Problem 11 a-g 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 1 lb Metal 63c рer Ib. 12 oz $1.00 per lb 88 per Ib Plastic Rubber 4 oz. Direct labor Per unit Item Cost $7.00 per hr Predetermined overhead rate based on direct labor hours $3.83 15 min Labor The January figures for purchasing, production, and labor are The company purchased 230,0000 pounds of raw materials in January at a cost of 78t a pound Production used 230,000 pounds of raw materials to make 116,000 units in January Direct labor spent 18 minutes on each product at a cost of $6.80 per hour. overhead costs for January totaled $40,482 varlable and $75,000 fixed Answer the following questions about standard costs what is the materlals price varlance? (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 LINK ΤΟ ΤΕΧΤ LINK TO TЕХT LINK TO TEXT 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 varlance LINK TO TEXT LINK TO TEXT LINK TO TEXT What is the total materials variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.) Total materials variance S

Answer 1

Solution to Part A of the question - Material Price variance

Material Price Variance = Actual quantity purchased * (Standard unit cost - Actual unit cost)

Where,

• Actual quantity purchased = 230,000 pounds of raw material (as mentioned in the question)
• Standard unit cost = 160 cents per lbs (as per working below)
• Actual unit cost = 78 cents per lbs (as mentioned in the question)

Working for standard unit cost:

Item (a)	Per Unit (b)	Per unit in lb (c)	Cost (d)	Cost in Cents (e)	Total cost in cents (f) = (c)*(e)
Metal	1 lb	1 lb	63 cents per lb	63 cents per lb	63 cents
Plastic	12 oz.	0.75 lb (12/16)	$1 per lb	100 cents per lb	75 cents
Rubber	4 oz.	0.25 lb (4/16)	88 cents per lb	88 cents per lb	22 cents

(Note: 16 oz = 1 lb)

Total number of units of raw material required to produce 1 unit of output = total of column (c) = 1+0.75+.25 = 2 lb

Total cost of raw material in cents used to produce 1 unit of output = total of column (f) = 63+75+22 = 160 cents

Hence, Material Price Variance = 230,000 * (160 - 78)

=230,000 * 82

= 18,860,000 cents

= $188,600 (Favorable)

Solution to Part B of the question - Material quantity variance

Material quantity Variance = Standard unit cost of raw material used * (Standard quantity - Actual quantity)

Where,

Standard per unit cost of raw material used = 160 cents per lbs (as per working in the table in Part A of the solution)

Standard quantity = 232000 pounds (as per working below)

Actual quantity = 230000 (as mentioned in the question)

Working for standard quantity :

Standard number of units of raw material required to produce 1 unit of output = (Refer part A of the solution) = 1+0.75+.25 = 2 lb

Hence, Standard number of units of raw material required to produce 116000 unit of output = 2*116000 lb = 232000 lb

Hence, Material quantity Variance = 160 cents (232000 lb - 230000 lb)

= 160 cents* 2000 lb

= 32000 cents

= $ 3200 (Favorable)

Solution to Part C of the question - Total Material variance

Total Material variance = Actual quantity used * (Standard per unit cost - Actual per unit cost)

Where,

Actual quantity used = 230000 (as mentioned in the question)

Standard per unit cost of raw material used = 160 cents per lbs (as per working in the table in Part A of the solution)

Actual per unit cost = 78 cents per lbs (as mentioned in the question)

Hence, Total Material Variance = 230,000 * (160 - 78)

=230,000 * 82

= 18,860,000 cents

= $188,600 (Favorable)

Solution to Part D of the question - Labour Price variance

Labour Price variance = Actual hours worked (Standard rate per hour - Actual rate per hour)

Where,

Actual hours worked = Actual time taken to produce 1 unit of output * number of units of output produced

= 18 minutes * 116000 units (figures as mentioned in the question)

= 2088000 minutes

= 34800 hours (where 60 minutes = 1 hour)

Standard rate per hour = $7 per hour (as mentioned in the question)

Actual rate per hour= $6.8 per hour (as mentioned in the question)

Hence, Labour rate Variance = 34800 * (7 - 6.8)

= $6960 (Favorable)