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 70,000 units of product were as follows: Standard Costs Actual Costs Direct materials Direct labor Factory overhead 189,000 Ibs, at $5.60 17,500 hrs. at $18.70 Rates per direct labor hr., based on 100% of normal capacity of 18,260 direct labor hrs. 187,100 lbs, at $5.40 17,900 hrs, at $19.00 Variable cost, $4.50 $77,960 variable cost Fixed cost, $7.10 $129,646 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 Favorable Favorable Favorable 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 Unfavorable Unfavorable Unfavorable X Favorable X Unfavorable X Unfavorable v

Explanation / Answer

Material price variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U Material price variance = (AP-SP)*AQ AP = Actual price per unit = $5.4 SP = Standard price per unit = $5.6 AQ = Actual quantity consumed= 187100 F= Favourable U = Unfavourable Material price variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U 5.4 5.6 0.2 187100 37420 F Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U Material quantity variance = (AQ-SQ)*SP AQ = Actual quantity consumed= 187100 SQ = Standard quantity = 189000 SP = Standard price per unit = $5.6 F= Favourable U = Unfavourable Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U 187100 189000 1900 5.6 10640 F Total Material variance Total Actual Total Std Total variance F/U 1010340 1058400 48060 F (187100*5.4) (189000*5.6) Labor Rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U Labor Rate variance = (AR-SR)*AH AR = Actual Rate per hour = $19 SR = Standard Rate per hour = $18.7 AH = Actual hours = 17900 F= Favourable U = Unfavourable Labor Rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U 19 18.7 -0.3 17900 -5370 U Labor Efficiency variance AH (a) SH (b) Variance (c=b-a) AR (d) Total variance (e=c*d) F/U Labor Efficiency variance = (AH-SH)*AR AH = Actual hours = 17900 SH = Standard Hours = 17500 SR = Standard Rate per hour = $18.7 F= Favourable U = Unfavourable Labor Efficiency variance AH (a) SH (b) Variance (c=b-a) SR (d) Total variance (e=c*d) F/U 17900 17500 -400 18.7 -7480 U Total Labor variance Total Actual Total Std Total variance F/U 340100 327250 -12850 U (17900*19) (17500*18.7) VOH Controllable variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U VOH Controllable variance = (AR-SR)*AH AR = Actual Rate per hour = $77960/17900 = $4.36 SR = Standard Rate per hour = $4.5 AH = Actual hours = 17900 F= Favourable U = Unfavourable VOH Controllable variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U 4.36 4.5 0.14 17900 2506 F FOH volume variance Budgeted FOH Applied FOH Total variance F/U FOH volume variance = Budgeted FOH - Applied FOH Applied FOH = Pre-determined overhead rate*Standard direct labor hours allowed for actual output Pre-determined overhead rate = $7.1 per direct labor hour Standard direct labor hours allowed for actual output = 70000*0.25 = 17500 Applied FOH = $7.1*17500 = $124250 FOH = Fixed overhead F= Favourable U = Unfavourable FOH volume variance Budgeted FOH Applied FOH Total variance F/U 129646 124250 5396 F (18260*7.1)

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