Direct Materials and Direct Labor, Vanance Analy8Factory overhead Cost vanance A

Question

Direct Materials and Direct Labor, Vanance Analy8Factory overhead Cost vanance Analysis Route 66 Tire Co. manufactures automabile tires. Standard costs and actual costs for direst materials, direct labor, and factary overhead incurred for the manufacture of 6,000 tires were as follows: Standard Costs Actual Costs Direct materials 7,800 ba. at $5.3D Direct labor Factory overheedRates per diredt labor hr 7,700 lba at $5.20 1,500 hr8, at 18.30 1,530 hrs, at $18.70 based on 100%6 of normal capacity of 1,550 direct labor hr8 Venable coet, 4.70 $5,980 variable coet Fixec cost, $7.40 11,520ixed cost Each tire recures 0-25 hours of direlabor. Required: d eterr "ne price vdrldn0 quantity verlano dnd o a direc meter dls cos ver ance. Er er d dvora le vanence as d negetive drnourt, dn dn u 'favorable verlangd ds posrtive r 'ourt, Favorable Favorable Favorable variance Quantity variance Total direct materials cost variance h. Datermina the rate varianos, time variance, and total direct labar nst varianoa. Enter a favorable variance aa a negative amount, and an unfavarable varianca as a positve amount Rate variance Time variance Total direct lebor cost varianceUnfavorable v c. Determine variable actory overhead controllable variance, the fxed ractory overhead olume vanance, and tota actory overhead cost variance Enter a avorab e varance as negative amount, and an unfavorable vanance as a posit ve amount. Veriable factory overhead controllable variance rixed factory overhead volume variance Total factory overhead coet variance Unfavorable Favorable v Unfavorablev Unfavorable

Explanation / Answer

a). Solution :-

i). Direct material price variance = Actual quantity of material purchased * (Standard price of material per unit - Actual price of material per unit)

= 7700 * (5.30 - 5.20)

= $ 770 (Favourable).

ii). Direct material quantity variance = Standard price of material per unit * (Standard quantity of material for the production of actual output - Actual quantity of material used in the production of actual output.)

= 5.30 * (7800 - 7700)

= $ 530 (Favourable).

iii). Total direct material cost variance = 770 (Favourable) + 530 (Favourable)

= $ 1300 (Favourable).

b). i). Direct labor rate variance = Actual Hours worked * (Standard rate per hour worked - Actual rate per hour worked)

= 1530 * (18.30 - 18.70)

= $ 612 (Unfavourable).

ii). Direct labor time variance = Standard labor rate per hour * (Standard hours worked for the production of actual output - Actual hours worked for the production of actual output.)

= 18.30 * (1500 - 1530)

= $ 549 (Unfavourable).

iii). Total direct labor cost variance = 612 (Unfavorable) + 549 (Unfavorable)

= $ 1161 (Unfavorable).

Conclusion :-

a). i). Direct material price variance $ 770 (Favourable) a). ii).  Direct material quantity variance $ 530 (Favourable) a). iii). Total direct material cost variance $ 1300 (Favourable) b). i). Direct labor rate variance $ 612 (Unfavourable) b). ii).  Direct labor time variance $ 549 (Unfavourable) b). iii). Total direct labor cost variance $ 1161 (Unfavourable)

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