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 6,800 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 9,500 lbs. at $4.80 9,400 lbs. at $4.60 Direct labor 1,700 hrs. at $17.70 1,740 hrs. at $18.10 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,770 direct labor hrs.: Variable cost, $3.90 $6,560 variable cost Fixed cost, $6.20 $10,974 fixed cost

Explanation / Answer

Solution:-

a. Material Variances

1.Direct Material Price Variance = (SP-AP)*AQ

= (4.80-4.60)*9400 = $1880 F

2. Direct Material Quantity Variance = (SQ-AQ)*SP

= (9500-9400)*4.80

= $480 F

3. Total Material Variance = Material Price Variance + Material Quantity Variance

= 1880 + 480 = $2360 F

b) Direct Labour Varainces

1. Rate Variance = (SR-AR) * Actual labour Hours

= (17.70-18.10)*1740

= $696 U

2. Time Variance = (Standard Hours - Actual Hours)* SR

= (1700-1740)*17.70

= $708 U

3. Total Direct Labour Variance = Rate Variance + Time Variance

= $696 U + $708 U

= $1404 U

c) Overhead Variance

1. Total Overhead Variance = Standard OH - Actual OH

Standard OH = Variable OH + Fixed OH

= (1700*3.90) + (1770*6.20)

= 6630 + 10974

= $17604

Variance = 17604 - (6560+10974)

= $70 F

Note:- For Standard Variable OH, Standard will be used and for Fixed OH Capaicty of 1770 Hours has been used.

2. Variable Factory Overhead Controllable Variance = Standard Variable OH - Actual Variable OH

= $6630 - $6560

= $70 F

3. Fixed OH Volume Variance = (Standard Output - Actual Output)* Fixed OH Absorption Rate per unit

= (6800-6800)*6.20

=0

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