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	244,200 lbs. at $5.30		241,800 lbs. at $5.20
Direct labor	18,500 hrs. at $18.50		18,930 hrs. at $18.90
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 19,310 direct
	labor hrs.:
		Variable cost, $4.70	$86,080 variable cost
		Fixed cost, $7.40	$142,894 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

Solution:

a.)

Direct materials price variance:

Direct materials price variance = Actual quantity purchased × (Standard price - Actual price)

= 241,800 × ($5.30 - $5.20)

= -$24,180 favorable

Direct materials quantity variance:

Direct materials quantity variance = Standard price × (Standard quantity - Actual quantity)

= $5.30 × (244,200 - 241,800)

= $5.30 × 2400

= -$12,720 favorable

Direct materials cost variance:

Direct materials cost variance = (Standard quantity × Standard price) - (Actual quantity - Actual price)

= ($5.30 × 244 200) -($5.20 × 241,800)

= $1,294,260 - $1,257,360

= -$36,900 favorable

DM price variance	-$24,180	F
DM quantity variance	-$12,720	F
DM cost variance	-$36,900	F

b.)

Direct labor rate variance:

Direct labor rate variance = Actual hours × (Standard rate - Actual rate)

= 18,930 hours × ($18.50 - $18.90)

= 18,930 × 0.40

=$ 7,572 Unfavorable

Direct labor time variance:

Direct labor time variance = Standard rate × (Standard time - Actual time)

= $18.50 × (18,500 - 18,930)

= $18.50 × 430

= $7,955 Unfavorable

Direct labor cost variance:

(Standard hours × Standard rate) - (Actual hours × Actual rate)

= (18,500 × $18.50) - ( 18,930 × $18.90)

= $342,250 - $357,777

= $15,527

DL rate variance	$7,572	UF
DL time variance	$7,955	UF
DL cost variance	$15,527	UF

c.)

Variable overhead controllable variance:

Variable overhead spending variance = Actual variable overhead - (Actual hours × Standard variable rate)

= $86080 - (18,930 × $4.70)

=$86080 - $88971

= - 2891 Favorable

Variable overhead efficiency variance = Standard variable rate × (Actual hours - Standard hours)

= $4.70 ×(18930 - 18500)

= $4.70 × 430

=$2021 Unfavorable

Variable overhead controllable variance = - $2891 + $2021

= - $870 Favorable

Fixed overhead volume variance:

Fixed overhead budget variance = (Actul Fixed overhead - Budgeted fixed overhead)

= $142,894 - $142894 (19310 × $7.40)

= 0

Fixed overhead volume variance = Budgeted overhead - Applied overhead

= (18,500 hrs. × $7.40) - $142894

= $136,900- $142894

=$5,994 Unfavorable

Total fixed overhead variance

= - $870 + $5994

= $5,124 Unfavorable

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