Problem:
Medical Instruments produces a variety of electronic medical devices. Medical Instruments uses a standard cost system and computes price variances at the time of purchase. One product, a thermometer, measures patient temperature orallt. It requires a silver lead with a standard length of 5 inches per thermometer. To make the leads, hollow silver tubing is purchased at a standard price of $4 per inch, cut into the required length, and then assembled into the thermometer.
There is no silver tubing in inventory when a batch of 200 thermometers was scheduled for production. Twelve hundred inches of silver tubing were purchased for $4,680 by the purchasing department for this 200-unit batch of thermometers, and 1,100 inches were used in production.
Compute the materials variances for silver tubing and comment on their meaning.