Question

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis

Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 5,600 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	7,300 lb. at $5.50		7,200 lb. at $5.40
Direct labor	1,400 hrs. at $18.60		1,430 hrs. at $18.80
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,460 direct
	labor hrs.:
		Variable cost, $3.20	$4,440 variable cost
		Fixed cost, $5.10	$7,446 fixed cost

Each unit requires 0.25 hour of direct labor.

Required:

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct materials price variance	$
Direct materials quantity variance
Total direct materials cost variance	$

b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct labor rate variance	$
Direct labor time variance
Total direct labor cost variance	$

c. Determine variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variable factory overhead controllable variance	$
Fixed factory overhead volume variance
Total factory overhead cost variance	$

Answer 1

Solution a:
Standard quantity of material for actual production = 7300 lb
Actual quantity of material = 7200 lb
Standard price of material = $5.50
Actual price of material = $5.40
Material price variance = (AP - SP) * AQ Purchased = ($5.40 - $5.50) * 7200 = -$720 F
Material quantity variance = (AQ - SQ) * SR = (7200 - 7300) * $5.50 =- $550 F
Total direct material cost variance = -$720 - $550 = -$1,270 F
Solution b:
Standard hours of direct labor = 1400 hours
Standard rate of direct labor = $18.6
Actual hours of direct labor = 1430 hours
Actual rate of direct labor =$18.8 per hour
Direct labor rate variance = (AR - SR) * AH = ($18.8 - $18.60) * 1430 = $286 U
Direct labor efficiency variance = (AH - SH) * SR = (1430 - 5600*.25) * $18.6 = $558 U
Total direct labor cost variance = $286 + $558 = $844 U
Solution c:
Standard variable overhead cost = 1400 * $3.20 = $4480
Actual variable overhead cost = $4440
Variable overhead controllable variance = Actual variable overhead cost - Standard variable overhead cost
$4440 - $4480 = -$40 F
Fixed overhead budget variance = Actual fixed overhead - Budgeted fixed overhead
$7446 - $1460*$5.1 = $0
Fixed overhead volume variance = Budgeted overhead - Fixed overhead applied
$7446 - (1400*$5.1) = $306 U
Total factory overhead cost variance = Variable overhead controllable variance + Fixed overhead volume variance
-$40 F + $306 U = $266 U