Question

#9

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 74,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	185,000 lbs. at $5.20		183,200 lbs. at $5.10
Direct labor	18,500 hrs. at $16.90		18,930 hrs. at $17.30
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 19,310 direct
	labor hrs.:
		Variable cost, $3.00	$54,950 variable cost
		Fixed cost, $4.70	$90,757 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	$	Favorable
Direct Materials Quantity Variance	$	Favorable
Total Direct Materials Cost Variance	$	Favorable

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	$	Unfavorable
Direct Labor Time Variance	$	Unfavorable
Total Direct Labor Cost Variance	$	Unfavorable

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	$	Favorable
Fixed factory overhead volume variance	$	Unfavorable
Total factory overhead cost variance	$	Unfavorable

Answer 1

Direct material price variance = (SP*AQ) - (AP*AQ) =(5.2-5.1)*183200 = -18,320

DM quantity variance = (SP*SQ) - (SP*AQ) = 5.2 (185000-183200) = -9360

Total matl. Cost variance = - 9360-18320 = -27680

Labour rate variance = (SR*AH) - (AR*AH) = (16.9 - 17.3)*18930 = 7572

Labour time variance = (SR*SH) - (SR*AH) = (18500-18930)*16.9 = 7267

Labour cost variance = 7267+7572 = 14839

Variable OH variance = 54950- (19310*3) = -2980

Fixed OH variance = 90757 - (19310*4.7) = 0