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.
(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) What is the total overhead variance?
(h) Evaluate the variances for this company for January. What do these variances suggest to management?