Question

Aquatic Corp.'s standard material requirement to produce one Model 2000 is 15 pounds of material at $110 per pound. Last month, Aquatic purchased 170,000 pounds of material at a total cost of $17,850,000. It used 162,000 pounds to produce 10,000 units of Model 2000. Calculate the materials price variance and materials quantity variance, and indicate whether each variance is favorable or unfavorable.

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Aquatic Corp.'s standard material required to produce one Model 2000 is 15 pounds of material at $110 per pound.

Last month, Aquatic purchased 170,000 pounds of material at a total cost of $17,850,000. It used 162,000 pounds to produce 10,000 units of Model 2000.

First, we need to calculate the direct material price variance:

Direct material price variance= (standard price - actual price)*actual quantity

Actual price= 17,850,000/170,000= $105 per pound

Direct material price variance= (110 - 105)*170,000= $850,000 favorable

It is favorable because the actual price per pound was lower than expected.

Finally, we need to calculate the direct material quantity variance using the following formula:

Direct material quantity variance= (standard quantity - actual quantity)*standard price

Standard quantity= 15*10,000= 150,000 pounds

Direct material quantity variance= (150,000 - 162,000)*110= $1,320,000 unfavorable

It is unfavorable because it used more pounds per unit than estimated.