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	231,000 lbs. at $5.60		228,700 lbs. at $5.50
Direct labor	17,500 hrs. at $16.90		17,900 hrs. at $17.10
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $3.00	$51,980 variable cost
		Fixed cost, $4.70	$85,822 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

please use a minus sign when necessary.

Answer 1

A.)	Direct Material Cost Variance:-
	Price Variance
	Actual price per unit	5.50
	Less :Standard price per unit	5.60
	Variance	-0.10
	x Actual quantity	228,700
	Direct material price variance		- $ 22,870	Favorable
	Quantity Variance
	Actual quantity	228,700
	Less :Standard Quantity	231,000
	Variance	- 2,300
	x Standard price per unit	$ 5.60
	Direct labor time variance		- $ 12,880	Favorable
	Direct Material Cost Variance		- $ 35,750	Favorable
B.)	Direct Labor Cost Variance:-
	Rate Variance
	Actual rate per hour	$ 17.10
	Less :Standard rate per hour	$ 16.90
	Variance	$ 0.20
	x Actual Hours	17,900
	Direct labor rate variance		$ 3,580	UnFavorable
	Time Variance
	Actual direct labor hours	17,900
	Less:Standard direct labor hours	17,500
	Variance	400
	x Standard rate per hour	$ 16.90
	Direct labor time variance		$ 6,760	UnFavorable
	Direct Labor Cost Variance		$ 10,340	UnFavorable
C.)	Factory overhead cost variance
	Variable factory overhead controllable variance
	Actual Variable FO cost incurred	$ 51,980
	Less :Budgeted variable FO cost for 17,500 hrs. (17,500 x 3)	$ 52,500
	Variance		- $ 520	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	$ 4.70
	Variance		$ 3,572	UnFavorable
	Total factory overhead cost variance		$ 3,052	UnFavorable