Question

1. 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 78,000 units of product were as follows:

   	Standard Costs		Actual Costs
   Direct materials	226,200 lbs. at $5.60		223,900 lbs. at $5.50
   Direct labor	19,500 hrs. at $18.20		19,950 hrs. at $18.50
   Factory overhead	Rates per direct labor hr.,
   	based on 100% of normal
   	capacity of 20,350 direct
   	labor hrs.:
   		Variable cost, $4.80	$92,660 variable cost
   		Fixed cost, $7.60	$154,660 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

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
223900	$5.50	$1,231,450.00			223900	$5.60	$1,253,840.00			226200	$5.60	$1,266,720.00
			-$22,390.00	F				-$12,880.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					-$22,390.00	F
Direct material quantity variance					-$12,880.00	F
Direct material cost variance					-$35,270.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
19950	$18.50	$369,075.00			19950	$18.20	$363,090.00			19500	$18.20	$354,900.00
			$5,985.00	U				$8,190.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$5,985.00	U
Direct Labor Efficiency variance					$8,190.00	U
Direct labor cost variance					$14,175.00	U

Solution c:

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

= $92,660 - (19500*$4.80) = - $940 F

Fixed factory overhead volume variance = Budgeted fixed overhead - Fixed overhead applied

= $154,660 - (19500 * $7.60) = $6,460 U

Total factory overhead cost variance = - $940 F + $6,460 U = $5,520 U