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 6,400 units of product were as follows: Standard Costs Actual Costs 8,200 lb. at $5.70 1,640 hrs. at $16.90 Direct materials 8,300 lb. at $5.80 Direct labor 1,600 hrs. at $16.50 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,670 direct labor hrs.: Variable cost, $3.20 Fixed cost, $5.10 Each unit requires 0.25 hour of direct labor. $5,070 variable cost $8,517 fixed cost 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 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 =
8200	$5.70	$46,740.00			8200	$5.80	$47,560.00			8300	$5.80	$48,140.00
			-$820.00	F				-$580.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					-$820.00	F
Direct material quantity variance					-$580.00	F
Direct material cost variance					-$1,400.00	F

solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
1640	$16.90	$27,716.00			1640	$16.50	$27,060.00			1600	$16.50	$26,400.00
			$656.00	U				$660.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$656.00	U
Direct Labor Efficiency variance					$660.00	U
Direct labor cost variance					$1,316.00	U

Solution c:

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

= $5,070 - (1600*$3.20) = - $50 F

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

= $8,517 - (1600 * $5.10) = $357 U

Total factory overhead cost variance = - $50 F + $357 U = $307 U