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 4,800 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	6,200 lb. at $4.90		6,100 lb. at $4.80
Direct labor	1,200 hrs. at $16.70		1,230 hrs. at $17.10
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,250 direct
	labor hrs.:
		Variable cost, $4.50	$5,350 variable cost
		Fixed cost, $7.10	$8,875 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 materials 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 =
6100	$4.80	$29,280.00			6100	$4.90	$29,890.00			6200	$4.90	$30,380.00
	-$610.00	F				-$490.00	F
			Direct Material Price Variance				Direct Material Qty variance
Direct material price variance	-$610.00	F
Direct material quantity variance	-$490.00	F
Direct material cost variance	-$1,100.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost			Standard cost for actual quantity			Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
1230	$17.10	$21,033.00			1230	$16.70	$20,541.00			1200	$16.70	$20,040.00
	$492.00	U				$501.00	U
			Direct Labor rate Variance				Direct Labor Efficiency Variance
Direct Labor Rate variance	$492.00	U
Direct Labor Efficiency variance	$501.00	U
Direct labor cost variance	$993.00	U

Solution c:

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

= $5,350 - (1200*$4.50) = - $50 F

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

= $8,875 - (1200 * $7.10) = $355 U

Total factory overhead cost variance = - $50 F + $355 U = $305 U