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	229,400 lbs. at $4.90		227,100 lbs. at $4.80
Direct labor	18,500 hrs. at $17.10		18,930 hrs. at $17.40
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

Part (a)

Calculation of direct material variances-

Direct material price variance = (Standard price-Acual price)Actual Quantity

= ($4.90-$4.80)227,100 lbs.

= $22,710 Favorable

Direct material quantity variance = (Standard quantity-Actual quantity)Standard price

= (229,400 lbs. - 227,100 lbs,)$4.90

= $11,270 Favorable

Total direct material cost variance = Direct material price variance+ Direct material quantity variance

= $22,710+$11,270

= $33,980 Favorable

Part (b)

Calculation of direct labour variances-

Direct labour rate variance = (Standard rate-Actual rate)Actual hours

= ($17.10-$17.40)18,930 hrs.

= $5,679 Unfavorable

Direct labour time variance = (Standard hours-Actual hours)Standard rate

= (18,500 hours-18,930 hours)$17.10

= $7,353 Unfavorable

Total direct labour cost variance = Direct labour rate variance+Direct labour time variance

= $5,679+$7,353

= $13,032 Unfavorable

Part (c)

Calculation of Overheads Variances-

Variable factroy overhead controllable variance=

(Standard Hours*Standard Rate)-Actual cost

= (18,500 lbs.*$3.20)-$58,610

= $590 Favorable

Fixed factory overhead volume variance =

Normal Capacity at 100% = 19,310 hours

Standard hours for actual production = 18,500 hours

Capacity not utilised = 810 hours

Standard fixed factory overhead cost = $5.10

Variance = 810*5.10

= $4,131 Unfavorable

Total factory overhead cost variance= Variable factroy overhead controllable variance+Fixed factory overhead volume variance

= -$590+$4,131

= $3,541 Unfavorable