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
| 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) | ||||||
Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis Mackinaw Inc. processes a base chemical...