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 manufactu of 6,800 units of product were as follows: Standard Costs Actual Costs Direct materials 8,800 lb. at $4.80 8,700 lb. at $4.70 1,700 hrs. at $16.10 1,740 hrs. at $16.50 Direct labor Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,770 direct labor hrs.: $7,410 variable cost Variable cost, $4.40 Fixed cost, $7.00 $12,390 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 $1 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

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
8700	$4.70	$40,890.00			8700	$4.80	$41,760.00			8800	$4.80	$42,240.00
			-$870.00	F				-$480.00	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					-$870.00	F
Direct material quantity variance					-$480.00	F
Direct material cost variance					-$1,350.00	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
1740	$16.50	$28,710.00			1740	$16.10	$28,014.00			1700	$16.10	$27,370.00
			$696.00	U				$644.00	U
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$696.00	U
Direct Labor Efficiency variance					$644.00	U
Direct labor cost variance					$1,340.00	U

Solution c:

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

= $7,410 - (1700*$4.40) = - $70 F

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

= $12,390 - (1700 * $7) = $490 U

Total factory overhead cost variance = - $70 F + $490 U = $420 U