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 4,800 units of product were as follows: Actual Costs 6,100 lb. at $5.60 1,230 hrs. at $18.60 Standard Costs Direct materials 6,200 lb. at $5.80 Direct labor 1,200 hrs. at $18.20 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,250 direct labor hrs. Variable cost, $3.70 Fixed cost, $5.80 Each unit requires 0.25 hour of direct labor. $4,400 variable cost $7,250 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 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.

Answer 1

a.

Direct material price variance = Actual quantity * (Standard price-Actual price)

Direct material price variance = 6,100 * ($5.8-5.6) = -$1,220 Favorable

Direct material quantity variance = Standard price * (Standard quantity - Actual quantity)

Direct material quantity variance = $5.80 * (6,200-6,100) = -$580 Favorable

Total direct material cost variance = $1,220+580 = -$1,800 Favorable

b.

Direct labor rate variance = Actual hours * (Standard rate-Actual rate)

Direct labor rate variance = 1,230 * ($18.20-18.60) = $492 Unfavorable

Direct labor efficiency variance = Standard rate * (Standard hours-Actual hours)

Direct labor efficiency variance = $18.20 * (1,200-1,230) = $546 Unfavorable

Total direct labor cost variance = $492 U + $546 U = $1,038 Unfavorable

c.

Variable factory overhead controllable variance = Standard overhead - Actual overhead

Variable factory overhead controllable variance = $4,440 (1,200*$3.7) - $4,400 = -$40 Favorable

Fixed factory overhead volume variance = (Budgeted hours-Standard hours) * Standard rate

Fixed factory overhead volume variance = (1,250-1,200) * $5.8 = $290 Unfavorable

Total factory overhead cost variance = $40 F + $290 U = $250 Unfavorable