Question

P13-5 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 10,000 tires were as follows: Standard Costs Direct materials Direct labor Factory overhead Actual Costs 83,800 lbs. at $6.17 4,450 hrs. at $21.00 85,000 lbs. at $6.25 4,000 hrs. at $20.80 Rates per direct labor hr., based on 100% of normal capacity of 5,000 direct labor hrs.: Variable cost, $2.90 Fixed cost, $11.40 $11,375 variable cost $57,000 fixed cost Instructions Determine (a) the price variance, quantity variance, and total direct materials cost variance; (b) the rate variance, time variance, and total direct labor cost variance; and (c) Appendix: variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance.

Answer 1

Solution a:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
83800	$6.17	$517,046			83800	$6.25	$523,750			85000	$6.25	531,250
			$6,704	F				$7,500	F
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$6,704	F
Direct material quantity variance					$7,500	F
Total Direct material cost variance					$14,204	F

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR=				AH *	SR =				SH *	SR =
4450	$21	$93,450			4450	$20.80	$92,560			4000	$20.80	$83,200
			$890	U				$9,360	U
			Direct Labor rate Variance					Direct Labor Time Variance
Direct Labor Rate variance					$5,985.00	U
Direct Labor Time variance					$8,190.00	U
Total labor cost variance					$14,175.00	U

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

= $11,375 - (4000*$2.90) = - $225 F

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

= $57,000 - (4000 * $11.40) = $11,400 U

Total factory overhead cost variance = - $225 F + $11,400 U = $11,175 U

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