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 40,000 units of product were as follows: Standard Costs Actual Costs Direct materials 120,000 lbs. at $3.20 per lb. 118,500 lbs. at $3.25 per ib. Direct labor 12,000 hrs. at $24.40 per hr. 11,700 hrs. at $25.00 per hr. Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 15,000 direct labor hrs. Variable cost, $8.00 Fixed cost, $10.00 Each unit requires 0.3 hour of direct labor. $91,200 variable cost $150,000 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 as a positive number. Direct Material Price Variance Unfavorable Direct Materials Quantity Variance Favorable

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
118500	$3.25	$385,125.00			118500	$3.20	$379,200.00			120000	$3.20	$384,000.00
			$5,925.00	U				-$4,800.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$5,925.00	U
Direct material quantity variance					-$4,800.00	F
Direct material cost variance					$1,125.00	U

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
11700	$25.00	$292,500.00			11700	$24.40	$285,480.00			12000	$24.40	$292,800.00
			$7,020.00	U				-$7,320.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$7,020.00	U
Direct Labor Efficiency variance					-$7,320.00	F
Direct labor cost variance					-$300.00	F

solution c:

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

= $91,200 - (12000*$8) = - $4,800 F

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

= $150,000 - (12000 * $10) = $30,000 U

Total factory overhead cost variance = - $4,800 F + $30,000 U = $25,200 U