Western Plastics Company Has the Following Information Concerning Its Direct

question 62

Essay

Western Plastics Company has the following information concerning its direct materials: Direct Materials:
$\begin{array}{lr}\text { Standard quantity } & 100,000 \\\text { Actual quantity } & 80,000 \\\text { Standard price } & \$ 3 \\\text { Actual price } & \$ 4\end{array}$ A. Determine the materials price variance and whether it is favourable or unfavourable.
B. Determine the materials usage variance and whether it is favourable or unfavourable.
C. Western Plastics has set control limits stating that actual costs should be investigated if they fall outside the acceptable range of the standard materials cost $\pm 10 \%$ .
i. What is the standard materials cost?
ii. What are the upper and lower control limits?
iii. What is the actual materials cost?
iv. Should the actual materials cost be investigated?

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Definitions:

Average Variable Cost

The total variable cost divided by the quantity of output produced; it is the cost of producing an additional unit of a good or service.

Purely Competitive

Market structures characterized by many buyers and sellers, where no single entity has the market power to influence the price of a homogeneous product.

Profit-Maximizing

The process by which a firm adjusts its production and sale to achieve the highest possible profit.

Short-Run

A period during which at least one input in the production process is fixed, affecting the firm's ability to adjust to changes in demand.