What is the materials quantity variance

Reference no: EM131489494

Midterm Exam

Q1. Hernandez Industries manufactures shampoo.

Joints costs incurred total $30,000 for a standard production run.

A standard production run generates 10,000 gallons of Everyday Shampoo and 6,000 gallons of Specialty Shampoo.

Everyday Shampoo sells for $9/gallon and Specialty Shampoo sells for $15/gallon

Currently all Specialty Shampoo is further processed into 7,000 gallons of Top Dollar Shampoo that sells for $21/gallon. (Further processing, at a cost of $37,000, involves adding a top secret, special ingredient and doing some additional refinement.)

a. How should the $30,000 of joint product costs be allocated under the Net Realizable Value Method?

b. Based on profitability only, should Hernandez continue to convert all Specialty Shampoo into Top Dollar Shampoo? Show calculations to support your answer.

Q2. Rey Enterprises has just opened a new division (Weatherly). One of their other divisions (Brinkley) makes a part that could be used in one of Weatherly's products.

You have the following information:

Brinkly Information:
Production Capacity	50,000	Parts per year
Currently selling	40,000	Parts per year

Selling price	$60	Per part
Variable costs
Manufacturing	$30	Per part
Selling	$2	Per part
Fixed costs	$450,000	Per year

Weatherly Division:
Quantity needed	20,000	Parts per year

Price from outside supplier	$48	Per part

Rey Enterprises is unwilling to increase capacity. All variable selling costs would be avoided on an intra-company transfer.

a. What's the maximum amount, per unit, Weatherly would be willing to pay Brinkly?

b. What's the minimum amount, per unit, Brinkly would be willing to charge Weatherly?

c. What's the overall impact (financially) on Rey Enterprises if the parts are made internally?

Q3. Thomas Company uses a standard costing system.

STANDARDS PER UNIT
	Quantity	Price
Direct material	3 yards	$1.80 per yard
Direct labor	1.5 hours	$15 per hour

ACTUALS
	Quantity	Dollars spent
DM purchased	4,000 yards	$6,600
DM used	3,900 yards
DL worked	1,890 Hours	$27,405
Units produced	1,250

Thomas calculates the material quantity variance when materials are purchased.

SHOW YOUR WORK. INDICATE WHETHER THE VARIANCE IS FAVORABLE OR UNFAVORABLE.

a. What is the materials quantity variance?

b. What is the materials price variance?

c. What is the labor rate variance?

d. What is the labor efficiency variance?

Reference no: EM131489494

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