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 5,600 units of product were as follows:
Standard Costs Actual Costs
Direct materials 7,300 lb. at $5.30 7,200 lb. at $5.20
Direct labor 1,400 hrs. at $17.00 1,430 hrs. at $17.30
Factory overhead Rates per direct labor hr.,
based on 100% of normal capacity
of 1,460 direct labor hrs.:
Variable cost, $4.50 $6,240 variable cost
Fixed cost, $7.10 $10,366 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 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.
Variable factory overhead controllable variance $
Fixed factory overhead volume variance
Total factory overhead cost variance $
Solution a:
Direct Material Cost Variance | ||||||||||||
Actual Cost | Standard cost for actual quantity | Standard Cost | ||||||||||
AQ * | AP = | AQ * | SP = | SQ * | SP = | |||||||
7200 | $5.20 | $37,440.00 | 7200 | $5.30 | $38,160.00 | 7300 | $5.30 | $38,690.00 | ||||
-$720.00 | F | -$530.00 | F | |||||||||
Direct Material Price Variance | Direct Material Qty variance | |||||||||||
Direct material price variance | -$720.00 | F | ||||||||||
Direct material quantity variance | -$530.00 | F | ||||||||||
Direct material cost variance | -$1,250.00 | F |
Solution b:
Direct Labor Cost Variance | ||||||||||||
Actual Cost | Standard cost for actual quantity | Standard Cost | ||||||||||
AH * | AR = | AH * | SR = | SH * | SR = | |||||||
1430 | $17.30 | $24,739.00 | 1430 | $17.00 | $24,310.00 | 1400 | $17.00 | $23,800.00 | ||||
$429.00 | U | $510.00 | U | |||||||||
Direct Labor rate Variance | Direct Labor Efficiency Variance | |||||||||||
Direct Labor Rate variance | $429.00 | U | ||||||||||
Direct Labor Efficiency variance | $510.00 | U | ||||||||||
Direct labor cost variance | $939.00 | U |
Solution c:
Variable factory overhead controllable variance = Actual cost of variable overhead - Standard cost of variable overhead
= $6,240 - (1400*$4.50) = - $60F
Fixed factory overhead volume variance = Budgeted fixed overhead - Fixed overhead applied
= $10,366 - (1400 * $7.10) = $426 U
Total factory overhead cost variance = - $60 F + $426 U = $366 U
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