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 78,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	218,400 lbs. at $4.80		216,200 lbs. at $4.60
Direct labor	19,500 hrs. at $18.10		19,950 hrs. at $18.40
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 20,350 direct
	labor hrs.:
		Variable cost, $4.80	$92,660 variable cost
		Fixed cost, $7.60	$154,660 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 Material 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	$

Answer 1

Calculation of direct material Price variance

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($4.80/Pound - $4.60/Pound ) × 216200 Pound = $43240 F

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

(218400-216200Pound )X $4.80 = $10560 F

Direct Mterial Cost Variance= Material Rate Avriance+ Material Quantity Variance

=$43240+10560=$53800

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($18.10/hour - $18.40/hour) × 19950 Hours= $5985 UF

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard Rate

= (19500 - 19950) × $18.10 = $8145 U F

Direct Labour Cost Variance= LRV+ LEV

=$5985UF+ $8145 UF=$14130 UF

Variable Overhead Controllable Variance= Std Cost Allowed - Actual Cost

( Actual Unit X std Hour X Std Rate)- Actual Cost Allowed

(78000**0.25*$4.80)-92660=$940 F

Fixed OH Volume Variance=(( Std hour for Actual Output)- Budgeted Hour)X Std Rate

((78000*0.25)-20350)X7.60=$6460 UF

Total Factory OH Cost variance= Variable Overhead Controllable variance+ FOH Volume Variance

=$940F+ $6460 UF=$5520 UF