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 5,600 units of product were as follows:

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.

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.

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.

Standard Costs Actual Costs Direct materials 7,300 lbs. at $4.60 7,200 lbs. at $4.50 Direct labor 1,400 hrs. at $18.20 1,430 hrs. at $18.40 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,460 direct labor hrs.: Variable cost, $3.10 $4,300 variable cost Fixed cost, $4.90 $7,154 fixed cost

Explanation / Answer

(a) Direct material variances Direct material price variance $720 Favorable (AQ x AR) - (AQ x SR) = (7200 x $4.50) - (7200 x $4.60) = $32400 -$33120 = $720 Direct material quantity variance $460 Favorable (AQ x SR) - (SQ x SR) = (7200 x $4.60) - (7300 x $4.60) = $33120 - $33580 = $460 Total direct materials cost variance $1180 Favorable (b) Direct labor variances Direct labor rate variance $286 Unfavorable (AH x AR) - (AH x SR) = (1430 x $18.40) - (1430 x $18.20) = $26312 - $26026 = $286 Direct labor efficiency variance $546 Unfavorable (AH x SR) - (SH x SR) = (1430 x $18.20) - (1400 x $18.20) = $26026 - $25480 = $546 Total direct labor cost variance $832 Unfavorable (c) Overhead variances Variable factory overhead controllable variance $133 Favorable (AH x AR) - (AH x SR) = ($4300) - (1430 x $3.10) = $4300 - $4433 = $133 Fixed factory overhead volume variance $147 Unfavorable Budgeted - Applied overheads = (1460 x $4.90) - (1430 x $4.90) = $7154 - $7007 = $147 Total factory overhead cost variance $14 Unfavorable Actual overheads incurred - Applied overheads ($4300 + $7154) - (1430 x $8) = $11454 - $11440 = $14

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