Question

Direct Materials and Direct Labor, Variance Analysis; Factory Overhead Cost Variance Analysis Route 66 Tire Co. manufactures automobile tires. Standard costs and actual costs for direct materials, direct labor, and factory overhead Incurred for the manufacture of 7,200 tires were as follows: Standard Costs Actual Costs Direct materials 9,400 lbs. at $5.50 9,300 lbs. at $5.40 Direct labor 1,800 hrs. at $17.60 1,840 hrs. at $17.90 Factory overhead Rates per direct labor hr. based on 100% of normal capacity of 1,880 direct labor hrs. Variable cost, $3.10 Fixed cost, $4.90 $5,520 variable cost $9,160 fixed cost Each tire requires 0.25 hours of direct labor. Required: a. Determine the price variance, quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.

Answer 1

a. Material cost variance

1. Price variance

(Actual price - standard price)*actual quantities

(5.40-5.50)*9300 = 930 $ favourable

2. Quantity variance

(Actual quantity - standard quantity)*standard quantity

(9300-9400)*5.50 = 550 $ favourable

3. Total material cost Variance

(Total actual cost - total standard cost) = (9300*5.40)-(9400*5.5) = 50220- 51700= 1480 $ favourable

or

price variance+quantity variance = 930+550 = 1480 $ favourable

c. Overhead variance

1. Variable factory overhead controllable variance can be calculated as follow:

standard variable expenses - actual variable expenses

(1840*3.10)- 5520 = 184 $ favorable

2. Fixed Factory Overhead Volume Variance can be calculated as follow

(Standard capacity- normal capacity)* Standard rate

(1840-1880)*4.9 = 196 $ unfavorable

3. Total Factory Overhead Cost Variance can be calculated as follow

total standard overhead cost - total actual overhead cost

(1840*(3.1+4.9))-14680 = 40$