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 7,200 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	9,400 lb. at $5.40		9,300 lb. at $5.30
Direct labor	1,800 hrs. at $16.60		1,840 hrs. at $17.00
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,880 direct
	labor hrs.:
		Variable cost, $4.60	$8,200 variable cost
		Fixed cost, $7.30	$13,724 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

a.

Direct material price variance = (Actual price - Standard price) * Actual quantity

Direct material price variance = ($5.30 - $5.40) * 9,300 = -$930 Favorable

Direct material price variance = (Standard quantity - Actual quantity) * Standard price

Direct material price variance = (9,400 - 9,300) * $5.40 = -$540 Favorable

Total direct material cost variance = -$1,470 Favorable

b.

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

Direct labor rate variance = ($17 - $16.60) * 1,840 = $736 Unfavorable

Direct labor efficiency variance = (Standard hours - Actual hours) * Standard rate

Direct labor efficiency variance = (1,800 - 1,840) * $16.60 = $664 Unfavorable

Total direct labor cost variance = $1,400 Unfavorable

c.

Variable factory overhead controllable variance = Actual variable overhead - Applied variable overhead

Variable factory overhead controllable variance = $8,200 - $8,280 (7,200*0.25*$4.60) = -$80 Favorable

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

Fixed factory overhead volume variance = $13,724 (1,880*$7.30) - $13,140 (7,200*0.25*$7.30) = $584 Unfavorable

Total factory overhead cost variance = $504 Unfavorable