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 78,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	241,800 lbs. at $5.90		239,400 lbs. at $5.70
Direct labor	19,500 hrs. at $16.50		19,950 hrs. at $16.80
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 20,350 direct
	labor hrs.:
		Variable cost, $3.90	$75,290 variable cost
		Fixed cost, $6.20	$126,170 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 Material Price Variance	$	Favorable
Direct Materials Quantity Variance	$	Favorable
Total Direct Materials Cost Variance	$	Favorable

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	$	Unfavorable
Direct Labor Time Variance	$	Unfavorable
Total Direct Labor Cost Variance	$	Unfavorable

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	$	Favorable
Fixed factory overhead volume variance	$	Unfavorable
Total factory overhead cost variance	$	Unfavorable

Answer 1

Solution 1:

Material price variance = (SP - AP) * AQ = ($5.90 - $5.70) * 239400 = $47,880 F

Material quantity variance = (SQ - AQ) * SR = (241800 - 239400) * $5.90 = $14,160 F

Total direct material cost variance = Direct material price variance + Direct material quantity variance

= $47,880 F + $14,160 F = $62,040 F

Solution 2:

Direct labor rate variance = (SR - AR) * AH = ($16.50 - $16.80) * 19950 = $5,985 U

Direct labor time variance = (SH - AH) * SR = (19500- 19950) * $16.50 = $7,425 U

Total direct labor cost variance = Direct labor rate variance + Direct labor time variance

= $5,985 U + $7,425 U = $13,410 U

Solution 3:

Standard variable overhead cost = 19500*$3.90 = $76,050

Actual variable overhead cost = $75,290

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

= $76,050 - $75,290 = $760 F

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

= (SH*SR) - (20350*$6.20)

= (19500 * $6.20) - $126,170 = $5,270 U

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

= $760 F + $5,270 U = $4,510 U