Question

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	229,400 lbs. at $5.10		227,100 lbs. at $4.90
Direct labor	18,500 hrs. at $17.50		18,930 hrs. at $17.80
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 19,310 direct
	labor hrs.:
		Variable cost, $4.20	$76,920 variable cost
		Fixed cost, $6.60	$127,446 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
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 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
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 =
227100	$4.90	$1,112,790.00			227100	$5.10	$1,158,210.00			229400	$5.10	$1,169,940.00
			$45,420.00	F				$11,730.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$45,420.00	F
Direct material quantity variance					$11,730.00	F
Direct material cost variance					$57,150.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
18930	$17.80	$336,954.00			18930	$17.50	$331,275.00			18500	$17.50	$323,750.00
			$5,679.00	U				$7,525.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$5,679.00	U
Direct Labor Efficiency variance					$7,525.00	U
Direct labor cost variance					$13,204.00	U

Solution c:

Variable factory overhead controllable variance = Standard variable overhead costs - Actual variable overhead costs

= (74000*0.25* $4.20) - $76,920 = $780 F

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

= (74000*0.25*$6.60) - $127,446 = $5,346 U

Total factory overhead cost variance = $780 F + $5,346 U = $4,566 U