Question

In: Accounting

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis Mackinaw Inc. processes a base chemical...

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 $

Solutions

Expert Solution

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


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