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 6,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	7,800 lb. at $5.60		7,700 lb. at $5.50
Direct labor	1,500 hrs. at $17.70		1,530 hrs. at $18.10
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,560 direct
	labor hrs.:
		Variable cost, $3.20	$4,750 variable cost
		Fixed cost, $5.10	$7,956 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	$

Answer 1

Answer:

A) Direct material price variance= (actual price - standard price )*actual quantity

Direct material price variance= (5.5 - 5.6)*7,700= -$770 favorable

Direct material quantity variance= ((actual quantity - standard quantity)*standard price

Direct material quantity variance= (7700 - 7800)* 5.60=-$560 favorable

Total direct material variance= -770 + -560 = -1330 favorable

B)Direct labor efficiency variance= (AQ - SQ)*standard rate

Direct labor efficiency variance= (1530 - 1500)*17.70= $531 unfavorable

Direct labor price variance= (AR - SR)*AQ

Direct labor price variance= (18.10 - 17.7*1530= $612 unfavorable

Total direct labor variance= 531 + 612 = $1,143 unfavorable

C) Variable factory overhead controllable variance= ($4,750 - $3.2*1560 )= -$242 favorable

Fixed factory overhead volume variance= (5.1 *1560 - $7,956)= 0

Total factory overhead variance= -$242 favorable