Question

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	229,400 lbs. at $5.60		227,100 lbs. at $5.50
Direct labor	18,500 hrs. at $18.30		18,930 hrs. at $18.50
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 19,310 direct
	labor hrs.:
		Variable cost, $3.70	$67,770 variable cost
		Fixed cost, $5.80	$111,998 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	$	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 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

	Standard Costs	Actual Costs
Direct materials	229,400 lbs at $5.60	227,100 lbs at $5.50
Direct labor	18,500 hrs at $18.30	18930 hrs at $18.50
Factory overhead	Rates per direct labor hr based on 100% of normal capacity of 19,310 direct labor hrs
Variable cost, $3.70	$67,770 variable cost
Fixed cost, $5.80	$111,998 fixed cost
Each unit requires 0.25 hour of direct labor
Units	74000

a) Direct Material Price Variance = (Actual Price - Standard Price)* Actual Quantity = ($5.50-$5.60)*227100

Direct Material Price Variance = - $ 22,710 (Favourable) (Favourable since Actual Price is less than Standard Price)

Direct Material Quantity Variance = (Actual Quantity - Standard Quantity)* Standard Price

Direct Material Quantity Variance = (227100-229400)* 5.6 = - $ 12,880 (Favourable) (Favourable since Actual Quantitiy is less than Standard Quantity)

Total Direct Materials Cost Variance = Direct Material Price Variance + Direct Material Quantity Variance

= - $22710 - $ 12,880 = - $35,590 (Favourable) (- ve value indictae Favourable)

b)

Direct Labor Rate Variance = (Actual Rate per Hr - Standard Rate per hr) * Actual Hrs = ($18.50 - $18.30)*18930 = $3,786 (Unfavourable) (+ve indicate unfavourable since actual rate is more than standard rate)

Direct Labor Time Variance = (Actual Direct Labour Hr - Standard Direct labour Hr) * Standard rate per hr = (18930-18500)*18.30 = $7,869 Unfavourable ( +ve indicate unfavourable since actual hr is more than standard hr)

Total Direct Labor Cost Variance =  Direct Labor Rate Variance +  Direct Labor Time Variance = $3,786 + $7,869 = $11,655 (unfavaourable)

c)

Variable factory overhead controllable variance = Actual Variable factory overhead - Standard variable factory overhead = Actual Variable factory overhead - Quantity*Labour hr per unit*standard variable overhead cost = 67,770 - 74000*0.25*3.70 = - $680 (Favourable)

Fixed factory overhead volume variance = (Standard Hr for 100% of normal capacity - Standard Hr for actual unit produced) * Standard Fixed factory overhead rate = (19310 - 74000*0.25 )*5.80 = $4698 (Unfavourable)

Total factory overhead cost variance = Variable factory overhead controllable variance + Fixed factory overhead volume variance = - $680 + $4698 = $4,018 (Unfavourable)