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	182,000 lbs. at $4.80		180,200 lbs. at $4.60
Direct labor	17,500 hrs. at $16.50		17,900 hrs. at $16.70
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

ACCT 101B - CH 23 EXAMPLE 3

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
1195000	$3.10	$3,704,500.00			1195000	$3.00	$3,585,000.00			1200000	$3.00	$3,600,000.00
			$119,500.00	U				$15,000.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$119,500.00	U
Direct material quantity variance					$15,000.00	F
Direct material cost variance					$104,500.00	U

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
235000	$5.75	$1,351,250.00			235000	$6.00	$1,410,000.00			240000	$6.00	$1,440,000.00
			$58,750.00	F				$30,000.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$58,750.00	F
Direct Labor Efficiency variance					$30,000.00	F
Direct labor cost variance					$88,750.00	F

Solution c:

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

= (70000*0.25*$4) - $69,300 = $700 F

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

= (70000*0.25*$6.30) - $115,038 = $4,788 U

Total factory overhead cost variance = $700 F + $4,788 U = $4,088 U