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	210,000 lbs. at $6.00		207,900 lbs. at $5.90
Direct labor	17,500 hrs. at $18.30		17,900 hrs. at $18.50
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $3.40	$58,910 variable cost
		Fixed cost, $5.40	$98,604 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	$	(Favorable/Unfavorable)
Direct Materials Quantity Variance	$	(Favorable/Unfavorable)
Total Direct Materials Cost Variance	$	(Favorable/Unfavorable)

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	$	(Favorable/Unfavorable)
Direct Labor Time Variance	$	(Favorable/Unfavorable)
Total Direct Labor Cost Variance	$	(Favorable/Unfavorable)

c. Determine the variable factory overhead controllable variance, 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/Unfavorable)
Fixed factory overhead volume variance	$	(Favorable/Unfavorable)
Total factory overhead cost variance	$	(Favorable/Unfavorable)

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
207900	$5.90	$1,226,610.00			207900	$6.00	$1,247,400.00			210000	$6.00	$1,260,000.00
			-$20,790.00	F				-$12,600.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					-$20,790.00	F
Direct material quantity variance					-$12,600.00	F
Direct material cost variance					-$33,390.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
17900	$18.50	$331,150.00			17900	$18.30	$327,570.00			17500	$18.30	$320,250.00
			$3,580.00	U				$7,320.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$3,580.00	U
Direct Labor Efficiency variance					$7,320.00	U
Direct labor cost variance					$10,900.00	U

solution c:

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

= $58,910 - (17500*$3.40) = - $590 F

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

= $98,604 - (17500 * $5.40) = $4,104 U

Total factory overhead cost variance = - $590 F + $4,104 U = $3,514 U