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 5,200 units of product were as follows:
Standard Costs | Actual Costs | ||
Direct materials | 6,800 lb. at $4.60 | 6,700 lb. at $4.40 | |
Direct labor | 1,300 hrs. at $18.10 | 1,330 hrs. at $18.50 | |
Factory overhead | Rates per direct labor hr., | ||
based on 100% of normal | |||
capacity of 1,360 direct | |||
labor hrs.: | |||
Variable cost, $3.20 | $4,120 variable cost | ||
Fixed cost, $5.10 | $6,936 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 | $ | Favorable/Unfavorable |
Direct materials quantity variance | Favorable/Unfavorable | |
Total direct materials cost variance | $ | Favorable/Unfavorable |
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 | $ | Favorable/Unfavorable |
Direct labor time variance | Favorable/Unfavorable | |
Total direct labor cost variance | $ | Favorable/Unfavorable |
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 | $ | Favorable/Unfavorable |
Fixed factory overhead volume variance | Favorable/Unfavorable | |
Total factory overhead cost variance | $ | Favorable/Unfavorable |
Solution a:
Direct Material Cost Variance | ||||||||||||
Actual Cost | Standard cost for actual quantity | Standard Cost | ||||||||||
AQ * | AP = | AQ * | SP = | SQ * | SP = | |||||||
6700 | $4.40 | $29,480.00 | 6700 | $4.60 | $30,820.00 | 6800 | $4.60 | $31,280.00 | ||||
$1,340.00 | F | $460.00 | F | |||||||||
Direct Material Price Variance | Direct Material Qty variance | |||||||||||
Direct material price variance | -$1,340.00 | F | ||||||||||
Direct material quantity variance | -$460.00 | F | ||||||||||
Direct material cost variance | -$1,800.00 | F |
Solution b:
Direct Labor Cost Variance | ||||||||||||
Actual Cost | Standard cost for actual quantity | Standard Cost | ||||||||||
AH * | AR = | AH * | SR = | SH * | SR = | |||||||
1330 | $18.50 | $24,605.00 | 1330 | $18.10 | $24,073.00 | 1300 | $18.10 | $23,530.00 | ||||
$532.00 | U | $543.00 | U | |||||||||
Direct Labor rate Variance | Direct Labor Efficiency Variance | |||||||||||
Direct Labor Rate variance | $532.00 | U | ||||||||||
Direct Labor Efficiency variance | $543.00 | U | ||||||||||
Direct labor cost variance | $1,075.00 | U |
Solution c:
Variable factory overhead controllable variance = Standard cost of variable overhead - Actual cost of variable overhead
= (5200*0.25*$3.20) - $4,120 = -$40 F
Fixed factory overhead volume variance = Fixed overhead applied - Budgeted fixed overhead
= (5200*0.25*$5.10) - $6,936 = $306 U
Total factory overhead cost variance = $40 F + $306 U = $266 U
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