In: Accounting
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 | 203,000 lbs. at $5.20 | 201,000 lbs. at $5.10 | |
Direct labor | 17,500 hrs. at $18.50 | 17,900 hrs. at $18.70 | |
Factory overhead | Rates per direct labor hr., | ||
based on 100% of normal | |||
capacity of 18,260 direct | |||
labor hrs.: | |||
Variable cost, $3.90 | $67,570 variable cost | ||
Fixed cost, $6.20 | $113,212 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 | $ |
Solution a:
Direct Material Cost Variance | ||||||||||||
Actual Cost | Standard cost for actual quantity | Standard Cost | ||||||||||
AQ * | AP = | AQ * | SP = | SQ * | SP = | |||||||
201000 | $5.10 | $1,025,100.00 | 201000 | $5.20 | $1,045,200.00 | 203000 | $5.20 | $1,055,600.00 | ||||
$20,100.00 | F | $10,400.00 | F | |||||||||
Direct Material Price Variance | Direct Material Qty variance | |||||||||||
Direct material price variance | $20,100.00 | F | ||||||||||
Direct material quantity variance | $10,400.00 | F | ||||||||||
Direct material cost variance | $30,500.00 | F |
Solution b:
Direct Labor Cost Variance | ||||||||||||
Actual Cost | Standard cost for actual quantity | Standard Cost | ||||||||||
AH * | AR = | AH * | SR = | SH * | SR = | |||||||
17900 | $18.70 | $334,730.00 | 17900 | $18.50 | $331,150.00 | 17500 | $18.50 | $323,750.00 | ||||
$3,580.00 | U | $7,400.00 | U | |||||||||
Direct Labor rate Variance | Direct Labor Efficiency Variance | |||||||||||
Direct Labor Rate variance | $3,580.00 | U | ||||||||||
Direct Labor Efficiency variance | $7,400.00 | U | ||||||||||
Direct labor cost variance | $10,980.00 | U |
Solution c:
Variable factory overhead controllable variance = Standard variable overhead cost - Actual variable overhead cost
= (70000*0.25*$3.90) - $67,570 = $680 F
Fixed factory overhead volume variance = Fixed overhead applied - Budgeted fixed overhead
= (70000*0.25*$6.20) - $113,212 = $4,712 U
Total factory overhead cost variance = $680 F + $4,712 U = $4,032 U