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 $5.40		190,500 lbs. at $5.20
Direct labor	18,500 hrs. at $18.50		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, $3.20	$58,610 variable cost
		Fixed cost, $5.10	$98,481 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	$	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 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	$	Favorable
Fixed factory overhead volume variance	$	Unfavorable
Total factory overhead cost variance	$	Unfavorable

_______________________________________________________________________________________________

Factory Overhead Cost Variances

Blumen Textiles Corporation began April with a budget for 47,000 hours of production in the Weaving Department. The department has a full capacity of 63,000 hours under normal business conditions. The budgeted overhead at the planned volumes at the beginning of April was as follows:

Variable overhead	$169,200
Fixed overhead	119,700
Total	$288,900

The actual factory overhead was $292,400 for April. The actual fixed factory overhead was as budgeted. During April, the Weaving Department had standard hours at actual production volume of 49,000 hours. Determine the variable factory overhead controllable variance and the fixed factory overhead volume variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your interim computations to the nearest cent, if required.

a. Variable factory overhead controllable variance: $  Favorable

b. Fixed factory overhead volume variance: $ Unfavorable

Answer 1

a.

Solution a:
Direct Material Cost Variance
Actual Cost			Standard cost for actual quantity			Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
190500	$5.20	$9,90,600.00			190500	$5.40	$10,28,700.00			192400	$5.40	$10,38,960.00
	-$38,100.00	F				-$10,260.00	F
			Direct Material Price Variance				Direct Material Qty variance
Direct material price variance	-$38,100.00	F
Direct material quantity variance	-$10,260.00	F
Direct material cost variance	-$48,360.00	F

b.

Direct Labor Cost Variance
Actual Cost			Standard cost for actual quantity			Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
18930	$18.80	$3,55,884.00			18930	$18.50	$3,50,205.00			18500	$18.50	$3,42,250.00
	$5,679.00	U				$7,955.00	U
			Direct Labor rate Variance				Direct Labor Efficiency Variance
Direct Labor Rate variance	$5,679.00	U
Direct Labor Efficiency variance	$7,955.00	U
Direct labor cost variance	$13,634.00	U

c.

Variable factory overhead controllable variance = Actual cost of variable overhead - Standard cost of variable overhead

= $58610 - (18500*$3.20) = - $590 F

Fixed factory overhead volume variance = Budgeted fixed overhead - Fixed overhead applied

= 98481 - (18500 * $5.10) = $4,131 U

Total factory overhead cost variance = - $580 F + $3952 U = $3,541 U