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

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 40,000 units of product were as follows:

Each unit requires 0.3 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 the variable factory overhead controllable variance, 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 120,000 lb. at $3.20 118,500 lb. at $3.25 Direct labor 12,000 hrs. at $24.40 11,700 hrs. at $25.00 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 15,000 direct labor hrs.: Variable cost, $8.00 $91,200 variable cost Fixed cost, $10.00 $150,000 fixed cost

Explanation / Answer

a. Direct materials Variance Price variance Actual quantity*(Actual price-Standard price) = 118500*(3.25-3.20) = $            5,925 Quantity variance Standard price*(Actual quantity-Standard quantity) = 3.2*(118500-120000) = $           -4,800 Total direct materials cost variance Actual direct material cost-Standard direct material cost = 118500*3.25-120000*3.2 Or Price variance+Quantity variance = 5925-4800 = $1125 $            1,125 b. Direct Labor Lariance Rate variance Actual hours*(Actual rate -Standard rate) = 11700*(25.00-24.40) = $            7,020 Time variance Standard rate*(Actual hours-Standard hours) = 24.40*(11700-12000) = $           -7,320 Total direct labor cost variance Actual direct labor cost-Standard direct labor cost = 11700*25.00-12000*24.40 Or Rate variance+Time variance = 7020-7320= -$300 $             -300 c) Overhead variances: Variable factory overhead controllable variance Actual variable overhead-Standard DL hours*Standard VOH rate = 91200-12000*8 = $           -4,800 Fixed factory overhead volume variance Budgeted Fixed overhead-Overhead applied = 150000-12000*10 $          30,000 Total factory overhead cost variance Actual overhead-Overhead applied = 91200+150000-12000*18 = $          25,200

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