WCP11 Waterways Corporation uses very stringent standard cos

WCP11 Waterways Corporation uses very stringent standard costs in evaluating its man- ufacturing 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 hour

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 78¢ a pound.

Production used 229,000 pounds of raw materials to make 115,500 units in January. Direct labor spent 18 minutes on each product at a cost of $7.80 per hour.
Overhead costs for January totaled $54,673 variable and $73,800 fixed.

What is the Materials Quantity Variance?

Solution

Std Qty :- Metal (1 pound * 115500 units) 115500 lb Plastic (12 oz * 115500 units)/16 oz 86625 lb Rubber (4 oz * 115500 units)/16 oz 28875 lb Total Std Qty 231000 lb Std Rate per lb:- {(63 cent * 1lb) + (100 cent * 0.75 lb) + (88 cent * 0.25 lb)}/2lb = 80 cent (or 0.80$) Material Price Variance = (SR – AR) * Actual Qty (80 – 78) * 229000 = 458000cent (F) (or 4580$(F)) Material Qty Variance = (Std Qty – Actual Qty) * Std Rate    = (231000 – 229000) * 0.80 = $1600 (F)