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	182,000 lbs. at $4.90		180,200 lbs. at $4.80
Direct labor	17,500 hrs. at $17.60		17,900 hrs. at $17.90
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $4.70	$81,430 variable cost
		Fixed cost, $7.40	$135,124 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	$	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 the variable factory overhead controllable variance, 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 Cost Variance:-
	Price Variance
	Actual price per unit	4.80
	Less :Standard price per unit	4.90
	Variance	-0.10
	x Actual quantity	1,80,200
	Direct material price variance		-18,020	Favorable
	Quantity Variance			Amounts in $
	Actual quantity	180,200
	Less :Standard Quantity	182,000
	Variance	-1,800
	x Standard price per unit	4.90
	Direct labor time variance		-8,820	Favorable
	Direct Material Cost Variance		-26,840	Favorable
B.)	Direct Labor Cost Variance:-
	Rate Variance
	Actual rate per hour	17.90
	Less :Standard rate per hour	17.60
	Variance	0.30
	x Actual Hours	17,900
	Direct labor rate variance		5,370	UnFavorable
	Time Variance
	Actual direct labor hours	17,900
	Less:Standard direct labor hours	17,500
	Variance	400
	x Standard rate per hour	17.60
	Direct labor time variance		7,040	UnFavorable
	Direct Labor Cost Variance		12,410	UnFavorable
C.)	Factory overhead cost variance
	Variable factory overhead controllable variance
	Actual Variable FO cost incurred	81,430
	Less :Budgeted variable FO cost for 17,500 hrs. (17,500 x 4.70)	82,250
	Variance		-820	Favorable
	Fixed factory overhead volume variance
	Hours at normal capacity	18,260
	Less :Standard hours for amount produced	17,500
	Productive capacity not used	760
	x Standard fixed FO cost rate	7.40
	Variance		5,624	UnFavorable
	Total factory overhead cost variance		4,804	UnFavorable