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.

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.