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 74,000 units of product were as follows:

Standard Costs Actual Costs

Direct materials 214,600 lbs. at $5.00 212,500 lbs. at $4.80

Direct labor 18,500 hrs. at $17.70 18,930 hrs. at $17.90

Factory overhead Rates per direct labor hr.,

based on 100% of normal

capacity of 19,310 direct

labor hrs.:

Variable cost, $3.90 $71,430 variable cost

Fixed cost, $6.20 $119,722 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 $ -42,500 Favorable

Direct Materials Quantity Variance $ -10,500 Favorable

Total Direct Materials Cost Variance $ -53,000   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 $ 3,786 Unfavorable

Direct Labor Time Variance $ 7,611 Unfavorable

Total Direct Labor Cost Variance $ 11,397 Unfavorable

c. Determine the variable factory overhead controllable variance, 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

(c)

Calculation of Overheads Variances-

Variable factory overhead controllable variance=

(Standard Hours*Standard Rate)-Actual cost

= (18,500 lbs.*$3.90)-$71,430

= -$720 Favorable

Fixed factory overhead volume variance =

Normal Capacity at 100% = 19,310 hours

Standard hours for actual production = 18,500 hours

Capacity not utilized = 810 hours

Standard fixed factory overhead cost = $6.20

Variance = 810*6.20

= $5,022 Unfavorable

Total factory overhead cost variance= Variable factory overhead controllable variance + Fixed factory overhead volume variance

= -$720+$5,022

= $4,302 Unfavorable

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