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 $5.00		7,200 lb. at $4.80
Direct labor	1,400 hrs. at $17.30		1,430 hrs. at $17.60
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

a)
Direct material price variance = (Actual Price - Standard Price) x Actual Quantity
= ($4.80 - $5) x 7200 = $1400 (F)

Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (7200 - 7300) x $5 = $500 (F)

Total direct materials cost variance = Direct material price variance + Direct Material Quantity Variance
= -$1400 - $500 = $1900 (F)

b)
Direct labor rate variance = (Actual rate - Standard Rate) x Actual Hours
= ($17.60 - $17.30) x 1430 = $429 (U)

Direct labor efficiency variance = (Actual Hours - Standard Hours) x Standard Rate
= (1430 - 1400) x $17.30 = $519 (U)

Total Direct Labor cost variance = Direct labor rate variance + Direct labor efficiency variance
= $429 + $519 = $948 (U)

c)
Variable Factory Overhead Controllable Variance = Actual Variable Factory Overhead - (Standard Hours for actual production x Variable overhead rate
= $4440 - (1400 x $3.20) = $40 (F)

Fixed Factory Overhead Volume Variance = (Standard Hours for 100% of normal capacity – Standard Hours for Actual Units Produced) * Fixed Factory Overhead Rate
= (1460 - 1400) x $5.10 = $306 (U)

Total factory overhead cost variance = Variable Factory Overhead Controllable Variance + Fixed Factory Overhead Volume Variance
= -$40 + $306 = $266 (U)