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	203,000 lbs. at $5.20		201,000 lbs. at $5.10
Direct labor	17,500 hrs. at $18.50		17,900 hrs. at $18.70
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $3.90	$67,570 variable cost
		Fixed cost, $6.20	$113,212 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

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
201000	$5.10	$1,025,100.00			201000	$5.20	$1,045,200.00			203000	$5.20	$1,055,600.00
			$20,100.00	F				$10,400.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$20,100.00	F
Direct material quantity variance					$10,400.00	F
Direct material cost variance					$30,500.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
17900	$18.70	$334,730.00			17900	$18.50	$331,150.00			17500	$18.50	$323,750.00
			$3,580.00	U				$7,400.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$3,580.00	U
Direct Labor Efficiency variance					$7,400.00	U
Direct labor cost variance					$10,980.00	U

Solution c:

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

= (70000*0.25*$3.90) - $67,570 = $680 F

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

= (70000*0.25*$6.20) - $113,212 = $4,712 U

Total factory overhead cost variance = $680 F + $4,712 U = $4,032 U