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
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 | ||||
Materials | 2 lb. | 80.00 per lb. | ||||
Direct labor | ||||||
Item | Per unit | Cost | ||||
Labor | 15 min. | $9.00 per hr. | ||||
Predetermined overhead rate based on direct labor hours = $3.62 |
The January figures for purchasing, production, and labor are:
The company purchased 228,200 pounds of raw materials in January at a cost of 78 a pound. |
Production used 228,200 pounds of raw materials to make 115,000 units in January. |
Direct labor spent 18 minutes on each product at a cost of $8.90 per hour. |
Overhead costs for January totaled $36,650 variable and $72,000 fixed. |
Answer the following questions about standard costs.
(a) What is the materials price variance?
(b) What is the materials quantity variance?
(c) What is the total materials variance?
(d) What is the labor price variance?
(e) What is the labor quantity variance?
(f) What is the total labor variance?
(g) Evaluate the variances for this company for January. What do these variances suggest to management?
Answers to all questions would be greatly appreciated!
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