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 = $4.68

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

The company purchased 231,800 pounds of raw materials in January at a cost of 78¢ a pound.

Production used 231,800 pounds of raw materials to make 117,000 units in January.

Direct labor spent 18 minutes on each product at a cost of $7.70 per hour.

Overhead costs for January totaled $71,489 variable and $70,000 fixed.

Answer the following questions about standard costs.

Materials price variance

$ _____

Materials quantity variance

$ ______

Total materials variance

$ ______

Labor price variance

$ ________

Labor quantity variance

$ ________

Total labor variance

$ _________

Total overhead variance

$ ________

Answer 1

Answer:

Standard Raw Material
	Per unit	Per unit in lb	Cost per lb (Cents)	Standard Cost (Cents)
Metal	1 lb	1 lb	63	63
Plastic	12 oz	0.75 lb	100	75
Rubber	4 oz	0.25 lb	88	22
Total standard cost per unit		2 lb		160

a	Direct Material price variance = Actual quantity x (Standard Rate - Actual Rate)
	= 231800 pounds (160 Cents - 78 Cents) = $ 190076 Favourable
b	direct material quantity variance = (Standard quantity - Actual quantity) x Standard Rate
	= (117000 units x 2 pounds - 231800 pounds) x 160 cents = $ 3520 Favourable
C	Total Material Variance = $ 190076+ $ 3520= $ 193596 Favourable
d	direct labor price variance = Actual hours x (Standard Rate - Actual Rate)
	= (117000 x 18/60) x (8 - 7.70) = $ 10530 Favourable
e	direct labor Efficiency variance = (Standard Hours - Actual hours) x Standard Rate
	= ((117000 x 15/60) - (117000 x 18/60)) x $ 8 = $ 46800 Unfavourable
f	Total Labor Variance = $ 46800 - $ 10530 =   $ 36270 unfavourable
g	Variable ovehead variance = Standard Overhead Costs - Actual Overhead costs
	= (117000 units x 15 min/60 min) x $ 4.68 - ($ 71489+ $ 70000)
	= $ 136890- $ 141489
	= $ 4599 Unfavourable