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 5,200 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	6,800 lb. at $6.00		6,700 lb. at $5.80
Direct labor	1,300 hrs. at $18.00		1,330 hrs. at $18.30
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,360 direct
	labor hrs.:
		Variable cost, $2.90	$3,730 variable cost
		Fixed cost, $4.60	$6,256 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

Ans:

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        6.00	-	$                       5.80	)	x	6700
	1340
	Variance		$              1340.00			Favourable
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	6800	-	6700	)	x	$                           6.00
	600
	Variance		$             600.00			Favourable
Total Direct Material Cost Variance
(	Standard Cost	-	Actual Cost	)
(	$           40800	-	$          38860	)
	1940
	Variance		$             1940.00			favourable

• Requirement [b]

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     18.00	-	$                    18.30	)	x	1330
	-399
	Variance		$              399.00			Unfavourable
Labour Time Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1300	-	1330	)	x	$                        18
	-540
	Variance		$              540.00			Unfavourable
Total Direct labor Cost Variance
(	Standard Cost	-	Actual Cost	)
(	$          23400	-	$          24339	)
	-939
	Variance		$                  939			Unfavourable

• Requirement [c]

Variable Overhead Controllable Variance
(	Standard Cost	-	Actual Cost	)
(	$             3770	-	$            3730	)
	40
	Variance		$              40.00			Favourable

Fixed Overhead Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$           5980	-	$          6256	)
	-276
	Variance		276			Unfavourable

                                                                                                                               

Fixed Overhead cost variance=Variable overhead controllable variance+ fixed Overhead volume variance =$40 + (-276)=236 Unfavourable