Question

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 78,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	202,800 lbs. at $5.50		200,800 lbs. at $5.30
Direct labor	19,500 hrs. at $16.10		19,950 hrs. at $16.40
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 20,350 direct
	labor hrs.:
		Variable cost, $2.90	$55,980 variable cost
		Fixed cost, $4.60	$93,610 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	$

Answer 1

Answer:

A) Material Variance
Direct Material Price Variance
= (Actual Price - Standard Price) * Actual Quantity
= (5.3 - 5.50)* 200800
= ($40,160) Favorable Variance -As actual price is less than standard price

2. Direct Material Quantity Variance
= (Actual Quantity - Standard Quantity)* Standard Price
= (200800 - 202800) * 5.50
= ($11000) Favorable Variance - As actual quantity used is less than standard quantity.
3. Total Direct Material Cost Variance:
= Actual Cost (Actual Quantity – Actual Price) - Standard Cost (Standard Quantity * Standard Price)
= (200800*5.3 - 202800 5.50)
= 1064240-1115400
= ($51,160) Favorable Variance - As the actual cost is less than standard cost.
B) Labour Variance
Direct Labour Rate Variance
= (Actual Rate per Hour – Standard Rate per Hour) * Actual Hours
= (16.4 – 16.10)* 19,950
= 5,985 Unfavorable- As the actual rate of labour is more than the standard rate

2. Direct labour Time Variance
= (Actual Direct labour hours – Standard Direct Labour hours) * Standard Rate per Hour
= (19,950 – 19,500) *16.10
= $7,245Unfavorable – As actual labour hours are more than standard labour hours

3. Total Direct labour Cost variance
= Actual Cost (Actual hours Actual Rate) – Standard Cost (Standard hours Standard Rat)
= (19,950 16.40) – (19,500 16.10)
= 13,230 Unfavorable- As the actual cost is more than standard cost
C) Factory Overhead Variance:
Variable Factory Overhead Controllable variance
= Actual Variable Factory Overhead – Budgeted Variable Factory Overhead for Actual Production
Budgeted Variable factory Overhead = Budgeted Labour Hours for Actual Production * Variable Overhead rate
= 19,500 * 2.90 = 56,550
Variable factory Overhead Controllable variance = 55980 – 56550
= 570 Unfavourable- as actual overhead are more than budgeted overhead
2. Fixed Factory Overhead Volume variance
= (Standard Hours for Normal Capacity – Standard Hours for Actual Production) * Fixed Factory O/H Rate
= (20,350 – 19500) * 4.60
= 3,910(Unfavorable)- as the actual labour hours used is less than 100% of normal capacity.

3. Total Factory Overhead Cost variance
= Actual Overheads – Standard Total overheads for Actual Production (Applied Overhead)
= (55980+93610) – (19500*2.90 + 19500 * 4.60)
= 149590 - 146250
= 3340 (Unfavorable)

Feel free to ask any clarification if required. Please provide feedback by thumbs up if satisfied. It will be highly appreciated. Thank you.