Question

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis Road Gripper Tire Co. manufactures automobile tires. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 4,160 tires were as follows: Standard Costs Actual Costs 101,000 lbs. at $6.50 2,000 hrs. at $15.40 Direct materials 100,000 lbs. at $6.40 Direct labor 2,080 hrs. at $15.75 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 2,000 direct labor hrs. Variable cost, $4.00 Fixed cost, $6.00 Each tire requires 0.5 hour of direct labor Required: $8,200 variable cost $12,000 fixed cost 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 Price variance Quantity variance Total direct materials 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 =
101000	$6.50	$656,500.00			101000	$6.40	$646,400.00			100000	$6.40	$640,000.00
			$10,100.00	U				$6,400.00	U
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$10,100.00	U
Direct material quantity variance					$6,400.00	U
Direct material cost variance					$16,500.00	U

Solution b:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
2000	$15.40	$30,800.00			2000	$15.75	$31,500.00			2080	$15.75	$32,760.00
			$700.00	F				$1,260.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$700.00	F
Direct Labor Efficiency variance					$1,260.00	F
Direct labor cost variance					$1,960.00	F

Solution c:

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

= (4160*0.50*$4) - $8,200 = $120 F

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

= (4160*0.50*$6) - $12,000 = $480 F

Total factory overhead cost variance = $120 F + $480 F = $600 F