Question

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 $5.40		223,900 lbs. at $5.20
Direct labor	19,500 hrs. at $18.30		19,950 hrs. at $18.50
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 20,350 direct
	labor hrs.:
		Variable cost, $2.90	$55,980 variable cost
		Fixed cost, $4.60	$93,610 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

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
223900	$5.20	$1,164,280.00			223900	$5.40	$1,209,060.00			226200	$5.40	$1,221,480.00
			-$44,780.00	F				-$12,420.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					-$44,780.00	F
Direct material quantity variance					-$12,420.00	F
Direct material cost variance					-$57,200.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
19950	$18.50	$369,075.00			19950	$18.30	$365,085.00			19500	$18.30	$356,850.00
			$3,990.00	U				$8,235.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$3,990.00	U
Direct Labor Efficiency variance					$8,235.00	U
Direct labor cost variance					$12,225.00	U

Solution c:

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

= $55,980 - (19500*$2.90) = - $570 F

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

= $93,610 - (19500 * $4.60) = $3,910 U

Total factory overhead cost variance = - $570 F + $3,910 U = $3,340 U