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.			$8.00 per hr.
Predetermined overhead rate based on direct labor hours = $4.75

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

The company purchased 225,900 pounds of raw materials in January at a cost of 78¢ a pound.

Production used 225,900 pounds of raw materials to make 114,000 units in January.

Direct labor spent 18 minutes on each product at a cost of $7.80 per hour.

Overhead costs for January totaled $64,387 variable and $76,000 fixed.

Answer the following questions about standard costs.

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

$

FavorableNeither favorable nor unfavorableUnfavorable

eTextbook and Media

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

eTextbook and Media

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

$

Answer 1

Waterways Corporation Requirement 1 Material price variance Actual quantity x (Actual price -Standard price) 12 oz 0.75 lb 4 oz 0.25 lb Standard price per unit ($) 1 x 0.63 +0.75 x 1+0.25 x 0.88 0.63 0.75+0.22 = 1.6 per unit So, Material price variance 225,900 x $(0.78- 1.6) 225,900 x $0.82 $185,238 (favorable) Requirement 2 Material quantity variance Standard price x (Actual quantity - Standard quantity) $1.6 x (225,900- 228,000) $1.6 x 2,100 $3,360 (Favorable) Total material per unit = (1+0.75 +0.25) lb 2 lb Total material for actual quantity produced 114,000 units x 2 lb 228,000 lb Requirement 3 Total material variance Price variance Quantity variance $185,238 (Favorable) +$3,360 (Favorable) $188,598 (Unfavorable)