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 78,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	226,200 lbs. at $5.30		223,900 lbs. at $5.10
Direct labor	19,500 hrs. at $16.60		19,950 hrs. at $17.00
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 20,350 direct
	labor hrs.:
		Variable cost, $4.30	$83,010 variable cost
		Fixed cost, $6.80	$138,380 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

a)
D.mat price variance=	AQ*SP-AQ*AP
D.mat price variance=	223900*5.30-223900*5.10
D.mat price variance=	$                                                                                                  (44,780)	Favourable
D.mat quantity variance=	SQ*SP-AQ*SP
D.mat quantity variance=	226,200*5.30-223900*5.30
D.mat quantity variance=	$                                                                                            (12,190.00)	Favourable
Total Direct Materials Cost Variance=	SQ*SP-AQ*AP
Total Direct Materials Cost Variance=	226,200*5.30-223900*5.10
Total Direct Materials Cost Variance=	$                                                                                            (56,970.00)	Favourable
b)
D.LABOR RATE variance=	AH*SR-AH*AR
D.LABOR RATE variance=	19,950*16.60-19,950*17.00
D.LABOR RATE variance=	$                                                                                                      7,980	UnFavourable
D.LABOR TIME variance=	SH*SR-AH*SR
D.LABOR TIME variance=	19,500*16.60-19,950*16.60
D.LABOR TIME variance=	$                                                                                                      7,470	UnFavourable
Total Direct LABOR Cost Variance=	SH*SR-AH*AR
Total Direct LABOR Cost Variance=	19,500*16.60-19,950*17.00
Total Direct LABOR Cost Variance=	$                                                                                                    15,450	UnFavourable
c)
Variable factory OH controllable variance=	Actual VOH-Budgeted VOH
Variable factory OH controllable variance=	83,010-19,500*4.30
Variable factory OH controllable variance=	$                                                                                                        (840)	Favourable
Fixed OH volume variance=	Absorbed Fixed OH-Budgeted Fixed OH
Fixed OH volume variance=	Actual units*Absorbtion rate-Budgeted units*absorbtion rate
Absorbtion rate=	Fixed cost per hour*0.25
Absorbtion rate=	6.80*0.25= $ 1.70
Fixed OH volume variance=	78000*1.70-78000*1.70
Fixed OH volume variance=	0
	No Fixed OH volume variance exists because actual output = budgeted output
Total factory overhead cost variance=	Total Variable OH variance + Total Fixed OH variance
Total Variable OH variance=	Actual Variable OH - budgeted Variable OH
Total Variable OH variance=	83010-19,500*4.30
Total Variable OH variance=	$                                                                                                        (840)	Favourable
Total Fixed OH variance=	Actual Fixed OH-Absorbed Fixed OH
Total Fixed OH variance=	138380-78000*1.70
Total Fixed OH variance=	$                                                                                                      5,780	UnFavourable
Total factory overhead cost variance=	$                                                                                                      4,940	UnFavourable