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 70,000 units of product were as follows:

   	Standard Costs		Actual Costs
   Direct materials	238,000 lbs. at $5.30		235,600 lbs. at $5.20
   Direct labor	17,500 hrs. at $16.40		17,900 hrs. at $16.80
   Factory overhead	Rates per direct labor hr.,
   	based on 100% of normal
   	capacity of 18,260 direct
   	labor hrs.:
   		Variable cost, $4.10	$71,030 variable cost
   		Fixed cost, $6.50	$118,690 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	$

Check My Work

Answer 1

a	Material price variance=Actual quantity of material used*(Actual rate of material-Standard rate of material)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Actual material used=235600 lbs.
	Standard rate of material=$ 5.30 per pound
	Actual rate of material=$ 5.20 per pound
	Material price variance=235600*(5.30-5.20)=23560=$ 23560 (Unfavorable)
	Material Quantity variance=Standard rate of material*(Actual quantity consumed-Standard quantity)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Standard rate of material=$ 5.30 per pound
	Standard quantity=238000 lbs.
	Actual material used=235600 lbs.
	Material quantity variance=5.30*(235600-238000)=-12720=$ 12720 (Favorable)
	Total material cost variance=Material price variance+Material quantity variance
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Total material cost variance=23560+-12720=10840=$ 10840 (Unfavorable)
b	Labor rate variance=Actual hours worked*(Actual rate of labor-Standard rate of labor)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Actual hours worked=17900 hours
	Standard rate of labor=$ 16.40 per hour
	Actual rate of labor=$ 16.80 per hour
	Labor rate variance=17900*(16.80-16.40)=7160=$ 7160 (Unfavorable)
	Labor time variance=Standard rate of labor*(Actual hours worked-Standard hours)
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Standard rate of labor=$ 16.40 per hour
	Standard hours=17500 hours
	Actual hours worked=17900 hours
	Direct labor time variance=16.40*(17900-17500)=6560=$ 6560 (Unfavorable)
	Total labor cost variance=Labor rate variance+labor time variance
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Total labor cost variance=7160+6560=13720=$ 13720 (Unfavorable)
c	Total factory overhead cost budgeted:
					$
	Variable cost		(18260*4.10)		74866
	Fixed cost		(18260*6.50)		118690
	Total				193556
	Fixed factory overhead budgeted=18260*6.50=$ 118690
	Variable factory overhead budgeted=$ 74866
	Variable factory overhead controllable variance=Actual variable factory overhead-Budgeted variable factory overhead based on standard hours allowed
	If the answer is negative, variance is favorable.Otherwise unfavorable.
	Variable factory overhead controllable variance=71030-(17500*4.10)=71030-71750=-720=$ 720 (Favorable)
	Fixed factory overhead volume variance=Absorbed fixed overhead-Budgeted fixed overhead
	If the answer is negative, variance is unfavorable.Otherwise favorable.
	Absorbed fixed overhead=Actual hours*rate per hour=17900*6.50=$ 116350
	Fixed factory overhead volume variance=116350-118690=-2340=$ 2340 (Unfavorable)
	Total factory overhead cost variance=Budgeted factory overhead-Actual factory overhead
	If the answer is negative, variance is unfavorable.Otherwise favorable.
	Total factory overhead cost variance=193556-(71030+118690)=193556-189720=3836=$ 3836 (Favorable)