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 6,800 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	8,800 lb. at $4.60		8,700 lb. at $4.40
Direct labor	1,700 hrs. at $18.30		1,740 hrs. at $18.60
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,770 direct
	labor hrs.:
		Variable cost, $4.80	$8,080 variable cost
		Fixed cost, $7.60	$13,452 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) * Actual quantity

Direct material price variance = ($4.40 - $4.60) * 8,700 = -$1,740 Favorable

Direct material quantity variance = (Standard quantity - Actual quantity) * Standard price

Direct material quantity variance = (8,800 - 8,700) * $4.60 = -$460 Favorable

Total direct material cost variance = $1,740 + 460 = -$2,200 Favorable

b.

Direct labor rate variance = (Actual rate - Standard rate) * Actual hours

Direct labor rate variance = ($18.60 - $18.30) * 1,740 = $522 Unfavorable

Direct labor time variance = (Standard hours - Actual hours) * Standard rate

Direct labor time variance = (1,700 - 1,740) * $18.30 = $732 Unfavorable

Total direct labor cost variance = $522 + $732 = $1,254 Unfavorable

c.

Variable factory overhead controllable variance = Actual Variable factory overhead - Standard Variable factory overhead

Variable factory overhead controllable variance = $8,080 - $8,160 (1,700*$4.80) = -$80 Favorable

Fixed factory overhead volume variance = Budgeted fixed factory overhead - Applied fixed factory overhead

Fixed factory overhead volume variance = $13,452 (1,770*$7.60) - $12,920 (1,700*$7.60) = $532 Unfavorable

Total factory overhead cost variance = Applied total factory overhead - (Actual variable overhead+Budgeted fixed overhead)

Total factory overhead cost variance = $21,080(1,700*$12.4) - $21,532($8,080+13,452) = $452 Unfavorable