Question

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 $5.40		7,200 lb. at $5.30
Direct labor	1,400 hrs. at $18.30		1,430 hrs. at $18.70
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,460 direct
	labor hrs.:
		Variable cost, $3.00	$4,160 variable cost
		Fixed cost, $4.70	$6,862 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:

Direct materials price variance = (SP - AP) * AQ = ($5.40 - $5.30) * 7200 = $720 F

Direct material quantity variance = (SQ - AQ) * SP = (7300 - 7200) * $5.40 = $540 F

Total direct material cost variance = Direct material price variance + Direct material quantity variance = $720 F + $540 F = $1,260 F

solution b:

Direct labor rate variance = (SR - AR)* AH = ($18.30 -$18.70) * 1430 = $572 U

Direct labor efficiency variance = (SH - AH) * SR = (1400 - 1430) * $18.30 = $549 U

Total direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance = $572 U + $549 U = $1,121 U

Solution c:

Variable factory overhead controllable variance = Standard cost of variable overhead - Actual cost of variable overhead

= (1400*$3) - $4,160 = $40 F

Fixed overhead cost volume variance = Fixed overhead applied - Budgeted fixed overhead

= (1400*$4.70) - $6,862 = $282 U

Total factory overhead cost variance = Variable factory overhead controllable variance + Fixed overhead volume variance

= $40 F + $282 U = $242 U