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 74,000 units of product were as follows: Standard Costs Actual Costs Direct materials 192,400 lbs. at $4.70 190,500 lbs. at $4.50 Direct labor 18,500 hrs. at $18.40 18,930 hrs. at $18.80 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 19,310 direct labor hrs.: Variable cost, $3.00 $54,950 variable cost Fixed cost, $4.70 $90,757 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

1) Direct material variances;

a) Direct material price variance = (Standard price - Actual Price) * Actual Quantity

Direct material price variance = ($4.70 - $4.50)* 190500 lbs

Direct material price variance =-$ 38,100 (Favourable)

b) Direct material quantity variance = ( Standard quantity - Actual Quantity) * Standard price

Direct material quantity variance = ( 192,400 lbs - 190,500 lbs) * $4.70 per lbs

Direct material quantity varince =-$8,930 (Favourable)

c) Direct material cost variance = Direct material price variance + Direct material quantity variance

  Direct material cost variance = $ 38,100 + $8,930= -$47,030 (Favourable)

2) Direct labour variances;

a) Direct labor rate variance = ( Standard rate - Actual rate)* Actual hours worked

= ($18.40 - $18.80) * 18,930 hrs

=$ 7572 (Unfavourable)

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

= (18,500 hrs - 18,930 hrs) * $18.40 per hr

= $ 7912 (Unfavourable)

c) Direct labor cost variance = Direct labour rate varince + Direct labour time variance

=-$14884 (unfcourable)

3) Variable controllable variance = Budgeted cost - Actual Cost

= ($3.00 per labor hr. X 19,310 hrs) - $54,950

= -$2,980 (F)

4) Fixed cost volume variance;

Workings; Computation of volume of production

Budgeted volume of production =(19,310 labor hrs./0.25 hr per unit) = 77,240 units

Actual volume of production = (18,930 labor hrs/0.25 hr per unit) = 75,720 units

Hence,

Fixed cost volume variance = (Budgeted volume - Actual volume) X Fixed cost allocation rate

= ( 77,240 units - 75,720 units ) X $4.70 per unit

= -$7,144 (Fvourable)

Fixed cost volume variance = (