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	207,200 lbs. at $5.20		205,100 lbs. at $5.00
Direct labor	18,500 hrs. at $16.90		18,930 hrs. at $17.20
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

Ans(a): Computation of Direct Material Price Variance are as follow:

The following formula will be used to compute Material Price Variance:

Actual Qty Purchased x (Standard Price - Actual Price)

The values given in the question are:

Actual Qty purchased = 205,100 lbs

Standard Price = $5.20

Actual Price = $5

using the values given,

205,100 lbs x ($5.20 - $5)

= -$41,020

Computation of Direct Material Quantity Variance are as follow:

The following formula will be used to compute Material Quantity Variance:

Standard Price x (Standard Quantity Purchase - Actual Quantity Purchase)

The values given in the question are:

Standard Price = $5.20

Standard Qty Purchase = 207,200

Actual Qty Purchase = 205,100

Using the values given,

$5.20 x (207,200-205,100)

= -$10,920

Computation of Direct Material Cost Variance are as follow:

The following formula will be used to compute Material Cost Variance:

(Standard Qty X Std Price) - (Actual Qty X Actual Price)

The values given in the question are:

Standard Qty = 207,200

Standard Price = $5.20

Actual Qty = 205,100

Actual Price = $5   

Using the values given,

(207,200 x $5.20) - (205,100 x $5)

$1,077,440 - $1,025,500

= -$51,940

Ans(b): Computation of Direct Labor Rate Variance:

The following formula will be used:

Actual Hours x (Standard Rate - Actual Rate)

The values given in the question are:

Actual Hours = 18,930

Standard Rate = $16.90

Actual Rate = $17.20

Using the values given,

18,930 hours x ($16.90 - $17.20)

= $5,679

Computation of Direct Labor Time Variance:

The following formula will be used:

Standard rate x (Standard Time - Actual Time)

The values given in the question are:

Standard Rate = $16.90

Standard Time = 18,500 hrs

Actual Time = 18,930 hrs

using the values given,

$16.90 x (18,500 - 18,930)

= $7,267

Computation of Direct Labor Cost Variance:

The following formula will be used:

(Standard Hours x Std Rate) - (Actual Hours x Actual Rate)

The values given in the question are:

Standard Rate = $16.90

Actual Rate = $17.20

Standard Time = 18,500 hrs

Actual Time = 18,930 hrs

Using the values given,

(18,500 x $16.90) - (18,930 x $17.20)

=$312,650 - $325,596

= $12,946