Mackinaw Inc. processes a base chemical Into plastic. Standard costs and actual

Question

Mackinaw Inc. processes a base chemical Into plastic. Standard costs and actual costs for direct materlals, direct labor, and factory overhead Incurred for the manufacture of 70,000 unlts of product were as follows: Standard Costs Actual Costs Direct materials DIrect labor Factory overhead 231,000 lbs. at s4.90 17,500 hrs. at $18.10 Rates per direct labor hr., based on 100% of normal capacity of 18,260 direct labor hrs. 228,700 lbs. at 4.80 17,900 hrs. at ?18.30 Variable cost, $4.40 $76,230 variable cost Fixed cost, $7.00 $127,820 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 varlance Total Direct Materials Cost Variance b. Determine the direct labor rate varlance, direct labor time varlance, and total direct labor cost varlance. Enter a favorable varlance as a negative number using a minus sign and an unfavorable varlance as a positive number Direct Labor Rate Variance Direct Labor Time Variance Total Direct Labor Cost Varlance 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 Flxed factory overhead volume varlance Total factory overhead cost variance

Explanation / Answer

Since there is no information on Opening Stock and Closing stock, we will presume that all the units produced are sold in the same period.

Solution A:

It should be noted that Direct Material Cost variance is total of direct material price variance and direct material quantity variance.

Material Price variance is calculated using the formulae as

= (Actual Price-Standard Price)*Quantity Purchased

= Actual Price*Quantity Purchased -Standard Price*Quantity Purchased

= $4.8*228,700 – $4.9*228,700

= $22,870 Favorable

Material Quantity Variance is calculated using the formulae as

= (Actual Quantity used- Standard Quantity used)*Standard rate

= (228,700 – 231,000)* 4.9

= 11,270 Unfavorable

Material Cost Variance = ($22,870) + $11,270 = ($11,600) Favorable

Solution-B:

It should be noted that Direct Labor Cost variance is total of Labor Rate variance and Labor Time/ Efficiency variance.

Labor Rate variance is calculated using the formulae as

= (Actual Rate-Standard Rate)*Actual Labor hour

= (18.3 – 18.1) * 17900

= $3,580 Unfavorable

Labor Time/ Efficiency variance is calculated using the formulae as

= (Actual hours used- Standard hours used)*Standard rate

= (17,900 – 17,500)* 18.1

= 7,240 Unfavorable

Labor Cost Variance = $3,580 + $7,240 = $10,820 Unfavorable

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