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. 880 per lb. Direct labor Item Per unit Cost Labor 15 min. $8.00 per hr. Predetermined overhead rate based on direct labor hours = $3.83 The January figures for purchasing, production, and labor are: The company purchased 230,100 pounds of raw materials in January at a cost of 78¢ a pound. Production used 230,100 pounds of raw materials to make 116,000 units in January. Direct labor spent 18 minutes on each product at a cost of $7.80 per hour. Overhead costs for January totaled $41,342 variable and $75,000 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 O decimal places, e.g. 125.)

Answer 1

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Ans: Material Price Variance: $ 4,602.00 Favourable Workings: Material Price Variance = (Standard Price - Actual Price) X Actual Quantity = ($ 0.80 - $ 0.78) X 230,100 lb. = $ 4,602 Favourable Standard Price = ($ 0.63 + ($1x12/16) + ($0.88x4/16))/2 = $ 1.6/2 = $ 0.80 Material Quantity Variance: $ 1,520.00 Favourable Workings: Material Quantity Variance = (Standard Quantity - Actual Quantity) X Standard Price = (232,000 - 230,100) X 0.80 = $ 1,520 Favourable Standard Quantity: Actual unit produced = 116,000 Units Standard material per unit of production = (1 lb. + 12 oz.(0.75 lb) + 4 oz.(0.25 lb) = 2 lb. i.e. 2 pound) Hence, Standard Quantity = 116,000 units X 2 lb. = 232,000 pounds Total Material Variance: $ 6,122.00 Favourable

Workings: Total Material Variance = Material Price Variance + Material Quantity Variance = $ 4,602 +$ 1,520 = $ 6,122 Favourable Labor Price Variance: $ 6,960.00 Favourable Workings: Labor Price Variance = (Standard Rate - Actual Rate) X Actual Labor Hours = ($ 8 - $ 7.80) X 34,800 Hours = $ 6,960 Favourable Actual Hours Worked = 116,000 units X 18 min = 2,088,000 minutes i.e. 34,800 Hours Labor Quantity Variance: $ 46,400.00 Un-favourable Workings: Labor Quantity Variance = (Standard hour - Actual Hour) X Standard Labor Rate = (29,000 - 34,800) X$ 8 = $ 46,400 Un-favourable Standard Labor Hour = 116,000 units X 15 min = 1,740,000 minutes i.e. 29,000 Hours Total Labor Variance: $ 39,440.00 Un-favourable

Workings: Total Labor Variance = Labor Price Varianve + Labor Quantity Variance = $ 6,960 F + $ 46,400 U = $ 39,440 Un-favourable Total Overhead Variance: $ 5,272.00 (Un-favourable Workings: Total Overhead Variance = Standard Overhead - Actual Overhead = $ 111,070 - $ 116,342 = $5,272 Un-favourable Actual Overhead = $ 41,342 + $ 75,000 = $ 116,342 Standard Overhead = Standard Labor Hours X Standard Overhead Rate = 29,000 Hours X $ 3.83 = $ 111,070

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Answer 2

Why you divides the standard price by two?