Complete WATERWAYS CONTINUING PROBLEM This is an instructor graded assignment, s
ID: 341897 • Letter: C
Question
Complete WATERWAYS CONTINUING PROBLEM This is an instructor graded assignment, so no outside help allowed WCP25 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. 58¢ per lb. Plastic 12 oz. 96¢ per lb. Rubber 4 oz. 80¢ per lb. Direct Labor Item Per Unit Cost Labor 12 min. $8.00 per hr. Predetermined overhead rate based on direct labor hours = $4.28 The January figures for purchasing, production, and labor are: The company purchased 229,000 pounds of raw materials in January at a cost of 74¢ a pound. Production used 229,000 pounds of raw materials to make 115,500 units in January. Direct labor spent 15 minutes on each product at a cost of $7.75 per hour. Overhead costs for January totaled $54,673 variable and $63,800 fixed. Instructions Answer the following questions about standard costs. NOTE: Parts (a) through (f) can be completed in the Variance Worksheet Template. (a) What is the materials price variance? (b) What is the materials quantity variance? (c) What is the total materials variance?
Explanation / Answer
a) 1 lb. = 16 oz.
Total standard price per pound of material = $0.58+$0.96+$0.80 = $2.34 per lb.
Standard material required per unit of output in pounds = 1 lb. + (12 oz./16 oz.) + (4 oz./16 oz.)
= 1 lb. + 0.75 lb. + 0.25 lb. = 2 lb.
Units produced = 115,500 units
Standard material for actual production = 115,500 units*2 lb. = 231,000 lb.
Actual price per lb. = $0.74
Materials Price variance = (Standard price - Actual Price)*Actual material
= ($2.34 - $0.74)*229,000 lb. = $366,400 Favorable
b) Material Quantity Variance = (Standard Qty - Actual Qty)*Std. Price
= (231,000 units - 229,000 units)*$2.34
= $4,680 Favorable
c) Total Material Variance = Standard material cost - Actual material cost
= (231,000 lb.*$2.34) - (229,000 lb.*$0.74)
= $540,540 - $169,460 = $371,080 Favorable
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