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 78,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	226,200 lbs. at $5.30		223,900 lbs. at $5.10
Direct labor	19,500 hrs. at $16.60		19,950 hrs. at $17.00
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 20,350 direct
	labor hrs.:
		Variable cost, $4.30	$83,010 variable cost
		Fixed cost, $6.80	$138,380 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	$
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

(A)

Material price variance = actual quantity x (standard price - actual price)

= 223900 x ($5.30 - $5.10)

= $44780 Favorable

(B)

Material quantity variance = standard price x (standard quantity - actual quantity)

= $5.30 x (226200 - 223900)

= $12190 Favorable

(C)

Total direct material variance = (standard quantity x standard price) - (actual quantity x actual price)

= (226200 x $5.30) - (223900 x $5.10)

= $1198860 - $1141890

= $56970 Favorable

(A)

Labor rate variance = actual hours x (standard rate - actual rate)

= 19950 x ($16.60 - $17)

= $7980 Unfavorable

(B)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $16.60 x (19500 - 19950)

= $7470 Unfavorable

(C)

Total direct labor variance = (standard hours x standard rate) - (actual hours x actual rate)

= (19500 x $16.60) - (19950 x $17)

= $323700 - $339150

= $15450 Unfavorable