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 78,000 units of product were as follows: Standard Costs Actual Costs Direct materials 195,000 lbs. at $5.50 193,100 lbs. at $5.40 Direct labor 19,500 hrs. at $18.40 19,950 hrs. at $18.70 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 20,350 direct labor hrs.: Variable cost, $2.80 $54,050 variable cost Fixed cost, $4.40 $89,540 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 $ 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 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 $ Fixed factory overhead volume variance $ Total factory overhead cost variance $

Answer 1

A) Material Variance

1. Direct Material Price Variance

= (Actual Price - Standard Price) * Actual Quantity

= (5.40 - 5.50)* 193100

= (19,310) Favorable Variance -As actual price is less than standard price

2. Direct Material Quantity Variance

= (Actual Quantity - Standard Quantity)* Standard Price

= (193,100 - 195,000) * 5.50

= (10450) Favorable Variance - As actual quantity used is less than standard quantity.

3. Total Direct Material Cost Variance:

= Actual Cost (Actual Quantity – Actual Price) - Standard Cost (Standard Quantity * Standard Price)

                         = (193,100 * 5.40 - 195,000 * 5.50)

                          = 1,042,740 - 1,072,500

                          = (29,760) Favorable Variance - As the actual cost is less than standard cost.

B) Labour Variance

1. Direct Labour Rate Variance

= (Actual Rate per Hour – Standard Rate per Hour) * Actual Hours

= (18.70 – 18.40)* 19,950

= 5,985 Unfavorable- As the actual rate of labour is more than the standard rate

2. Direct labour Time Variance

= (Actual Direct labour hours – Standard Direct Labour hours) * Standard Rate per Hour

= (19,950 – 19,500) *18.40

= 8,280 Unfavorable – As actual labour hours are more than standard labour hours

3. Total Direct labour Cost variance

= Actual Cost (Actual hours * Actual Rate) – Standard Cost (Standard hours * Standard Rat)

= (19,950 * 18.70) – (19,500 * 18.40)

= 14,265 Unfavorable- As the actual cost is more than standard cost

C) Factory Overhead Variance:

1.   Variable Factory Overhead Controllable variance

= Actual Variable Factory Overhead – Budgeted Variable Factory Overhead for Actual Production

      Budgeted Variable factory Overhead = Budgeted Labour Hours for Actual Production * Variable Overhead rate

                                                                        = 19,500 * 2.80 = 54,600

           Variable factory Overhead Controllable variance = 54,050 – 54600

                                                             = (550) favourable- as actual overhead are more than budgeted overhead

2. Fixed Factory Overhead Volume variance

= (Standard Hours for Normal Capacity – Standard Hours for Actual Production) * Fixed Factory O/H Rate

= (20,350 – 19500) * 4.40

= 3,740 (Unfavorable)- as the actual labour hours used is less than 100% of normal capacity.

3. Total Factory Overhead Cost variance

= Actual Overheads – Standard Total overheads for Actual Production (Applied Overhead)

= (54,050 + 89,540) – (19500*2.80 + 19500 * 4.40)

= 143,590 – 140,400

= 3190 (Unfavorable)

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