Question

1.

The following data relate to factory overhead cost for the production of 6,000 computers:

Actual:	Variable factory overhead	$163,000
	Fixed factory overhead	70,000
Standard:	6,000 hrs. at $35	210,000

If productive capacity of 100% was 10,000 hours and the total factory overhead cost budgeted at the level of 6,000 standard hours was $238,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $7 per hour. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variance	Amount	Favorable/Unfavorable
Variable factory overhead controllable variance	$
Fixed factory overhead volume variance
Total factory overhead cost variance	$

2.

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 $4.60		7,200 lb. at $4.40
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

ANSWER:

Required 1)

Variance	Amount	Favorable/Unfavorable
Variable factory overhead controllable variance (WN 1)	- 5,000	Favorable
Fixed factory overhead volume variance (WN 2)	28,000	Unfavorable
Total factory overhead cost variance (WN 3)	23,000	Unfavorable

Working Notes:

WN1)

Variable factory overhead controllable variance

= Actual variable factory overhead - Budgeted variable factory overhead

= 163,000 - [6,000 * (35 - 7)] = 163,000 - 168,000 = (5,000) Favorable

WN 2)

Fixed factory overhead volume variance

= Fixed factory overhead rate x (Standard hours for 100% of normal capacity - Standard hours for actual units produced)

= 7 * (10,000 - 6,000) = 28,000 Unfavorable

WN 3)

Total factory overhead cost variance

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

= - 5,000 + 28,000 = 23,000 Unfavorable

Required 2a)

Direct materials price variance	- 1,440	Favorable
Direct materials quantity variance	- 460	Favorable
Total direct materials cost variance	- 1,900	Favorable

Direct Material Price Variance = Purchase quantity * (Actual Price - Standard Price)

= 7,200 * (4.40 - 4.60) = (1,440) Favorable

Direct Material Quantity Variance = Standard Price * (Actual Quantity - Standard Quantity)

= 4.60 * (7,200 - 7,300) = (460) Favorable

Total Direct Material cost Variance = Direct Material Price Variance + Direct Material Quantity Variance

= - 1,440 + (- 460) = - 1,440 - 460 = (1,900) Favorable

Required 2b)

Direct labor rate variance	572	Unfavorable
Direct labor time variance	549	Unfavorable
Total direct labor cost variance	1,121	Unfavorable

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

= 1,430 * (18.70 - 18.30) = 572 Unfavorable

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

  = 18.30 * (1,430 - 1,400) = 549 Unfavorable

Total Direct Labor cost variance = Direct Labor rate variance + Direct Labor time variance

= 572 + 549 = 1,121 Unfavorable

Required 2c)

Variable factory overhead controllable variance	- 40	Favorable
Fixed factory overhead volume variance	282	Unfavorable
Total factory overhead cost variance	242	Unfavorable

Variable Factory overhead controllable variance

= Actual cost of variable overhead - (Standard hours * Standard variable rate)

= 4,160 - (1,400 * 3) = (40) Favorable

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

= 6,862 - (1,400 * 4.70) = 282 Unfavorable

Total factory overhead cost variance

= Variable Factory overhead controllable variance + Fixed factory overhead volume variance

= - 40 + 282 = 242 Unfavorable