Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis East

Question

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis
Eastern Polymers, 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 6,800 units of product were as follows:
    Standard Costs   Actual Costs
Direct materials   9,500 lbs. at $5.00   9,400 lbs. at $4.90
Direct labor   1,700 hrs. at $16.50   1,740 hrs. at $17.00
Factory overhead   Rates per direct labor hr.,  
    based on 100% of normal  
    capacity of 1,770 direct  
    labor hrs.:  
       Variable cost, $3.50   $5,890 variable cost
       Fixed cost, $5.50   $9,735 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.
Price variance   $  
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.
Rate variance   $  
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   $  

Explanation / Answer

a) Direct Material Quantity rate cost Standard cost 9500 lbs. 5.00 47500.00 Actual Cost 9400 lbs. 4.90 46060.00 1) Total Material cost Variance   It measures change in cost on account of overall material costs = Actual Cost - Standard cost of actual output = 46060-47500 -1440 Favourable 2) Material price variance It measures change in cost on account of material prices = Actual quantity ( actual price - strandard price) = 9400 ( 4.90-5.00) -940 Favourable 3) Material quantity variance It measures change in cost on account of material used in production = Standard price ( actual quantity - standardr quantity) = 5.00 (9400-9500) = 5(-100) -500 Favourable b) Direct Labor Hours rate cost Standard cost 1700 hours 16.50 28050.00 Actual Cost 1740 hours 17.00 29580.00 1) Total Direct Labor cost variance It measures change in cost on account of overall labor costs = Actual cost - Standard cost =29580-28050 1530 Unfavourable 2) Direct labor rate variance It measures change in cost on account of labor rates = Actual hours ( Actual rate - standard rate) = 1740(17.00-16.50) = 1740 x 0.50 870 Unfavourable 3) Direct Labor time variance It measures change in cost on account of change in lanor hours used in production = Standard rate ( Actual time - standard time) = 16.50 ( 1740 -1700) 660 Unfavourable c) 1) Variable factory overhead controllable variance It compares Actual variable overhead with budgeted overheads on actual output = Actual Variable overhead expense - ( Budgeted variable overhead rate x standard time to produce actual output) = 5890 - ( 3.50 per hour x 1700 hours) -60 Favourable 2) Fixed factory overhead volume variance It comparess actual overheads recoverd with budgeted fixed overheads = Budgeted fixed overhead - Actual hours x fixed overehead recovery rate = 9735 -1740 x 5.50 165 Un Favourable 3) Total Factory overhead cost variance It meaasures difference on account of actual costs and applied costs = Actual cost - Total Absorbed cost Total Actual costs = 5890+9735 = 15625 Recovery rate for variable and fixed overheads = 3.50+5.50, =9 Absorbed cost = = Actual hours x recovery rate = 1740 x 9 15660 Total Overhead variance = 15625-15660 -35 Favourable

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