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 265,200 lbs. at $5.80 262,500 lbs. at $5.70 Direct labor 19,500 hrs. at $16.20 19,950 hrs. at $16.50 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 20,350 direct labor hrs.: Variable cost, $4.70 $90,730 variable cost Fixed cost, $7.40 $150,590 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 $ 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

Computation of data for variance analysis:

    Standard Quantity (SQ) Standard Price (SP) Actual Quantity (AQ) Actual Price (AP)

Direct Material 265,200 Lbs $5.80 262,500 Lbs $5.70

  Standard Hours (SH) Standard Rate (SR) Actual Hours (AH) Actual Rate (AR)

Direct Labour 19,500 hours $16.20 19,950 hours $16.50

(a) Direct Material Price Variance = (SP-AP) AQ =(5.80 - 5.70)*262,500 = - $ 26,250 (F)

Direct Material Quantity Variance = (SQ-AQ) SP = (265,200 - 262,500)*5.80 = - $ 15660 (F)

Total Direct Material Cost Variance = SQSP - AQAP = (265,200*5.80) - (262,500*5.70) = - $ 41 ,910 (F)

(b) Direct Labour Rate Variance = (SR-AR) AH = (16.20 - 16.50)*19,950 = $ 5985 (A)

Direct Labour Time Variance = (SH - AH) SR = (19,500 - 19,950)*16.20 = $ 7290 (A)

Total Direct Labour Cost Variance = SHSR - AHAR = (19,500*16.20) - (19,950*16.50) = $ 13,275 (A)

(c) Variable Factory overhead controllable variance = Actual Variable Factory Overhead - {Standard hours (Standard rate - Fixed Overhead Rate)} = $90,730 - {19,500 * (16.20 - 7.40)} = $ 80,870 (A)

Fixed Factory Overhead volume Variance = Fixed Factory Overhead - (standard hours * fixed factory overhead rate) = 150,590 - (19,500 * 7.40) = - $ 6,290 (F)

Total Factory Overhead Cost Variance = (Variable Factory Overhead + Fixed Factory Overhead) - (Standard Hours * Standard Rate) = (90,730 + 150,590) - (19,500* 16.20) = 241,320 - 315,900 = $ 74,580 (A)