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.

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13 September, 09:17

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.

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Puppy · Answer 1

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.