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 70,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	203,000 lbs. at $5.20		201,000 lbs. at $5.10
Direct labor	17,500 hrs. at $16.60		17,900 hrs. at $17.00
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $3.90	$67,570 variable cost
		Fixed cost, $6.20	$113,212 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

A) Direct material price variance= (standard price - actual price)*actual quantity

Direct material price variance= (5.20 - 5.10) * 201,000 = - $20,100 favorable

Direct material quantity variance= (standard quantity - actual quantity) * standard price

Direct material quantity variance= (203,000 - 201,000) * 5.20= - $10,400 favorable

Total direct material variance= -20,100 - 10,400 = -30,500 favorable

B) Direct labor efficiency variance= (SQ - AQ) * standard rate

Direct labor efficiency variance= (17,500 - 17,900) * 16.60 = $6,640 unfavorable

Direct labor price variance= (SR - AR) * AQ

Direct labor price variance= (16.60 - 17) * 17,900 = $7,160 unfavorable

Total direct labor variance = 6,640 + 7,160 = 13,800 unfavorable

C) Variable factory overhead controllable variance= (67,570 - 3.90 x 17,500)= $680 unfavorable

Fixed factory overhead volume variance= (17,900 - 18,260) x 6.20= $2,232 unfavorable

Total factory overhead variance = 2,912 unfavorable