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 6,400 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	8,300 lb. at $6.00		8,200 lb. at $5.80
Direct labor	1,600 hrs. at $18.70		1,640 hrs. at $19.00
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,670 direct
	labor hrs.:
		Variable cost, $4.70	$7,440 variable cost
		Fixed cost, $7.40	$12,358 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.

Price variance	$
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.

Rate variance	$
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

Solution a:

Standard quantity of direct material = 8300 lb.

Actual quantity of direct material = 8200 lb.

Standard price of material = $6

Actual price of material = $5.80

Direct material price variance = (SP - AP) * AQ = ($6 - $5.80) * 8200 = $1,640 F

Direct material quantity variance = (SQ - AQ) * SP = (8300 - 8200) * $6 = $600 F

Solution b:

Standard rate of direct labor = $18.70

Actual rate of direct labor = $19

Standard hours of direct labor = 1600 hrs

Actual hours of direct labor = 1640 hrs

Direct labor rate variance = (SR - AR) * AH = ($18.70 - $19) * 1640 = $492 U

Direct labor efficiency variance = (SH - AH) * SR = (1600 - 1640) * $18.70 = $748 U

Solution c:

Variable factory overhead controllable variance = Standard variable overhead cost - Actual variable overhead cost

= 1600 * $4.70 - $7,440 = $80 F

Fixed factory overhead variance = Applied overhead - Actual overhead = 1600 * $7.40 - $12,358 = $518 U

Total factory overhead cost variance = Variable overhead cost variance + fixed factory overhead variance

= $80 F + $518 U = $438 U

=