Question

23-3

1) 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 4,800 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	6,200 lb. at $5.60		6,100 lb. at $5.40
Direct labor	1,200 hrs. at $17.80		1,230 hrs. at $18.20
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,250 direct
	labor hrs.:
		Variable cost, $4.40	$5,230 variable cost
		Fixed cost, $7.00	$8,750 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	$
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 1:

Solution c: Variable factory overhead controllable variance = Actual cost of variable overhead - Standard cost of variable overhead = $5,230 - (1200*$4.40) = - $50 F Fixed factory overhead volume variance = Budgeted fixed overhead - Fixed overhead applied = $8,750 - (1200 * $7) = $350 U Total factory overhead cost variance = - $50 F + $350 U = $300 U