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 74,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	214,600 lbs. at $5.30		212,500 lbs. at $5.10
Direct labor	18,500 hrs. at $18.30		18,930 hrs. at $18.70
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 19,310 direct
	labor hrs.:
		Variable cost, $3.20	$58,610 variable cost
		Fixed cost, $5.10	$98,481 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 =
212500	$5.10	$1,083,750.00			212500	$5.30	$1,126,250.00			214600	$5.30	$1,137,380.00
			$42,500.00	F				$11,130.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$42,500.00	F
Direct material quantity variance					$11,130.00	F
Direct material cost variance					$53,630.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
18930	$18.70	$353,991.00			18930	$18.30	$346,419.00			18500	$18.30	$338,550.00
			$7,572.00	U				$7,869.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$7,572.00	U
Direct Labor Efficiency variance					$7,869.00	U
Direct labor cost variance					$15,441.00	U

Solution c:

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

= (74000*0.25*$3.20) - $58,610 = $590 F

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

= (74000*0.25 * $5.10) - $98,481 = $4,131 U

Total factory overhead cost variance = $590 F + $4,131 U = $3,541 U