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	231,000 lbs. at $4.90		228,700 lbs. at $4.80
Direct labor	17,500 hrs. at $17.90		17,900 hrs. at $18.30
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $4.00	$69,300 variable cost
		Fixed cost, $6.30	$115,038 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 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	$
Fixed factory overhead volume variance	$
Total factory overhead cost variance	$

Answer 1

a) Direct Material Price variance = (Standard Price -Actual Price)*Actual Quantity

= ($4.90-$4.80)*228,700 lbs = $22,870 (F)

b) Direct Material Quantity Variance = (Standard Quantity - Actual Quantity)* Standard Price

=(231,000 lbs - 228,700 lbs) *$4.90 = $11,270 (F)

c) Total Direct Material Cost Variance = Standard Cost - Actual Cost

= (231,000 lbs *$4.90 - 228,700 lbs* 4.80)

= $1,131,900 - $1,097,760 = $34,140 (F)

d) Direct Labor Rate Variance = (Standard Rate - Actual Rate)*Actual Hours

= ($17.90- $18.30)*17,900 = $ (7,160) (U)

e) Direct Labor Time Variance = (Standard Hours - Actual Hours)*Standard Rate

= (17,500 hrs - 17,900 hrs) * $17.90 = $ (7,160) (U)

f) Total Direct Labor Cost Variance = Standard Cost - Actual Cost

= 17,500 hrs * $17.90 - 17,900 hrs *$18.30

= $313,250 - $327,570 = $(14,320) (U)

g) Variable Factory overhead controllable Variance

= Actual Overhead Cost - (Budgeted Overhead cost per unit *Standard Direct Labor Hours)

  = $69,300 - ($4.00 * 17,500 hrs)

= $69,300- $70,000 = $700 (F)

h) Fixed factory overhead volume variance = Absorbed Fixed Overhead - Budgeted Fixed Overhead

Absorbed Fixed Overhead = Actual direct labor hours*Std rate

= 17,900 hours*$6.30 = $112,770

Budgeted Fixed Overhead = Std labor hours*Std rate

= 17,500 hrs*$6.30 = $110,250

Fixed factory overhead volume variance = $112,770 - $110,250 = $2,520 (U)

i) Total factory overhead cost variance = Total Fixed Overhead Variance + Total Variable Overhead controllable variance

Total Fixed Overhead Variance = Fixed Overhead Absorbed Variance - Actual Overhead Variance

= $112,770 - $115,038

= $2,268 (U)

Total factory overhead cost variance = $2,268 U+ $700 F = $1,568 (U)