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.			$7.00 per hr.
Predetermined overhead rate based on direct labor hours = $3.48

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

The company purchased 225,800 pounds of raw materials in January at a cost of 77¢ a pound.

Production used 225,800 pounds of raw materials to make 114,000 units in January.

Direct labor spent 18 minutes on each product at a cost of $6.80 per hour.

Overhead costs for January totaled $27,886 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.)

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.)

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.)

What is the labor price variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.)

What is the labor quantity variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.)

What is the total labor variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.)

What is the total overhead variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.)

Answer 1

Answers:

A.) Materials price variance

Material price Variance = (Std Price - Actual Price) * Actual Quantity

Calculation of std price -

Metal: - (63*1) = 63

Plastic: - (.75 * 1) = .75

Rubber: - (0.25*88) = 22

Total standard price = 85.75

Material price Variance = (77 - 85.75) *225,800 = 1,975,750 Favorable

B.) Materials quantity variance

Material Quantity Variance = (Standard quantity - actual quantity) * selling Price

                                      = (225800 - 114000 *2) 85.75 = 188,650 Favorable

C.) Total materials variance

Total Material Variance = Standard cost - Actual cost

                                 = (228000 * 85.75 - 225800 * 77)

                                 = 2,164,400 Favorable

D.)  Labor price variance

Labor Price Variance = (Standard Rate - Actual Rate) * actual pay hours

similarly, actual hour paid will be 18 min / 60 min = 0.3 hour × 114,000 = 34,200 Hours

Labor Price Variance = (7 - 6.80) * 34,200 = 6840 Favorable

E.) Labor quantity variance

Labor Quantity Variance or Labor efficiency variance = (Standard Hours - Actual Worked Hours) * Standard Rate

Standard Hours = 114,000 × 15 / 60 = 28500

Actual = 114000 × 18 / 60 = 34200

Labor Quantity Variance = (28500 - 34200) * 7 per hour = 39,900 Unfavorable

F.) Total labor variance

Total labor variance = Standard cost - actual cost

                            = (114,000 × .25 * 7) - (114,000 × .30 × 6.8) = 33060 Unfavorable

G.) Total overhead variance

Total Overhead Variance = Standard Overhead – Actual overhead

=(114,000 × .25 * 3.48) – (27,886 + 76,000)= $ 4,706 Unfavorable