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 $4.90		8,200 lb. at $4.70
Direct labor	1,600 hrs. at $17.40		1,640 hrs. at $17.60
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,670 direct
	labor hrs.:
		Variable cost, $3.30	$5,230 variable cost
		Fixed cost, $5.20	$8,684 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

Part A

Materials price variance = AQ *(AP-SP) =8200*(4.70-4.90) = -1640 =1640 favorable

Materials quantity variance = SP * (AQ-SQ) = 4.90*(8200-8300) = - 490 =490 Favorable

Total materials cost variance = 1640 favorable + 490 favorable = 2130 Favorable

Part B

Labor rate variance = AH* (AR - SR) =1640*(17.60-17.40)= 328 Unfavorable

Labor efficiency variance = SR *(AH - SH) =17.40*(1640-1600) =696 Unfavorable

Total direct labor cost variance = 328 Unfavorable + 696 Unfavorable = 1024 Unfavorable

Part C

Variable factory overhead controllable variance = actual variable factory overhead cost incurred - Budgeted variable factory overhead for 1600 hrs = 5230-(1600*3.30) =-50 =50 favorable

Fixed factory overhead volume variance = standard fixed factory overhead cost incurred *(hours at normal capacity - Standard hours for amount produced) = 5.20*(1670-1600)= 364 Unfavorable

Total factory overhead cost variance = 50 favorable + 364 Unfavorable = 314 Unfavorable