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 6,800 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	8,800 lb. at $5.60		8,700 lb. at $5.40
Direct labor	1,700 hrs. at $17.30		1,740 hrs. at $17.70
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,770 direct
	labor hrs.:
		Variable cost, $3.10	$5,220 variable cost
		Fixed cost, $4.90	$8,673 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	$

PART 2

Leno Manufacturing Company prepared the following factory overhead cost budget for the Press Department for October of the current year, during which it expected to require 18,000 hours of productive capacity in the department:

Variable overhead cost:
Indirect factory labor	$169,200
Power and light	8,100
Indirect materials	43,200
Total variable overhead cost		$220,500
Fixed overhead cost:
Supervisory salaries	$77,180
Depreciation of plant and equipment	48,510
Insurance and property taxes	30,870
Total fixed overhead cost		156,560
Total factory overhead cost		$377,060

Assuming that the estimated costs for November are the same as for October, prepare a flexible factory overhead cost budget for the Press Department for November for 16,000, 18,000, and 20,000 hours of production. Round your interim computations to the nearest cent, if required. Enter all amounts as positive numbers.

Leno Manufacturing Company
Factory Overhead Cost Budget-Press Department
For the Month Ended November 30
Direct labor hours	16,000	18,000	20,000
Variable overhead cost:
Indirect factory labor	$	$	$
Power and light
Indirect materials
Total variable factory overhead	$	$	$
Fixed factory overhead cost:
Supervisory salaries	$	$	$
Depreciation of plant and equipment
Insurance and property taxes
Total fixed factory overhead	$	$	$
Total factory overhead cost	$	$	$

Answer 1

Part 1

a) Direct materials price variance= (Standard price-Actual price)*Actual quantity

= ($5.60-5.40)*8700= $-1740 Favorable

Direct materials quantity variance= (Standard quantity-Actual quantity)*Standard price

= (8800-8700)*$5.60= $-560 Favorable

Total direct materials cost variance= (Standard price*Standard quantity-Actual price*Actual quantity)

= ($5.60*8800-$5.40*8700)= $-2300 Favorable

Direct materials price variance	$-1740	Favorable
Direct materials quantity variance	-560	Favorable
Total direct materials cost variance	$-2300	Favorable

b) Direct labor rate variance= (Standard rate-Actual rate)*Actual hours

= ($17.30-17.70)*1740= $696 Unfavorable

Direct labor time variance= (Standard hours-Actual hours)*Standard rate

= (1700-1740)*$17.30= $692 Unfavorable

Total direct labor cost variance= (Standard rate*Standard hours-Actual rate*Actual hours)

= ($17.30*1700-$17.70*1740)= $1388 Favorable

Direct labor rate variance	$696	Unfavorable
Direct labor time variance	692	Unfavorable
Total direct labor cost variance	$1388	Unfavorable

c) Variable factory overhead controllable variance= (Standard hours*Standard variable cost-Actual variable cost)

= (1700*$3.10-$5220)= $-50 Favorable

Fixed factory overhead volume variance= (Standard hours*Standard fixed cost-Actual fixed cost)

(1700*$4.90-8673)= $343 Unfavorable

Actual total overhead= $5220+8673= $13893

Total overhead applied= ($3.10+4.90)*1700= $13600

Total factory overhead cost variance= (Total overhead applied-Actual total overhead)

= ($13600-13893)= $293 Unfavorable

Variable factory overhead controllable variance	$-50	Favorable
Fixed factory overhead volume variance	343	Unfavorable
Total factory overhead cost variance	$293	Unfavorable

Part 2

Leno Manufacturing Company
Factory Overhead Cost Budget-Press Department
For the Month Ended November 30
Direct labor hours	16000	18000	20000
Variable overhead cost:
Indirect factory labor	$150400	$169200	$188000
Power and light	7200	8100	9000
Indirect materials	38400	43200	48000
Total variable factory overhead	$196000	$220500	$245000
Fixed factory overhead cost:
Supervisory salaries	$77180	$77180	$77180
Depreciation of plant and equipment	48510	48510	48510
Insurance and property taxes	30870	30870	30870
Total fixed factory overhead	$156560	$156560	$156560
Total factory overhead cost	$352560	$377060	$401560

Calculation of Indirect factory labor

16000 hours= $169200/18000*16000= $150400

18000 hours= $169200/18000*18000= $169200

20000 hours= $169200/18000*20000= $188000

Calculation of Power and light

16000 hours= $8100/18000*16000= $7200

18000 hours= $8100/18000*18000= $8100

20000 hours= $8100/18000*20000= $9000

Calculation of Indirect materials

16000 hours= $43200/18000*16000= $38400

18000 hours= $43200/18000*18000= $43200

20000 hours= $43200/18000*20000= $48000