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 4,400 units of product were as follows: Standard Costs Direct materials5,700 bs. at $5.30 Direct labor Factory overheadRates per direct labor hr., Actual Costs 5,600 lbs. at $5.20 1,130 hrs. at $18.30 1,100 hrs. at $17.80 based on 100% of normal capacity of 1,150 direct labor hrs.: $5,340 variable cost $8,855 fixed cost Variable cost, $4.90 Fixed cost, $7.70 Each unit requires 0.25 hour of direct labor. Required: a. Determine the direct materials price variance, direct materials guantity 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 Quantity varlance Total direct materials cost variance Favorable v

Explanation / Answer

Requirement a:

Price Variance = (Actual Cost – Standard Cost) * Actual quantity of units produced

= (5.2 – 5.3) * 5600

= $560 Favorable

Quantity Variance = (Actual Quantity – Standard Quantity) * Standard Cost

= (5600 - 5700) * 5.3

= $530 Favorable

Total Direct Material Cost Variance = Price Variance + Quantity Variance

= 560 + 530

= $1090 Favorable

Requirement b:

Rate Variance = (Actual Rate – Standard Rate) * Actual Hours

= (18.3 – 17.8) * 1130

= $565 Unfavorable

Time Variance = (Actual Hours – Standard Hours) * Standard Rate

= (1130 - 1100) * 17.8

= $534 Unfavorable

Total Direct Labor Cost Variance = Rate Variance + Time Variance

= $565 + $534

= $1099 Unfavorable

Requirement c:

Controllable Variance = Actual Overhead – Budgeted Allowance based on standard hours allowed

= $5340 – (4.9 * 1150)

= $5340 - $5635

= $295 Favorable

Fixed Factory Overhead Volume Variance

= Applied Overheads – Budgeted Overheads

= (7.7 * 1130) – (7.7 * 1100)

= $8701 - $7700

= $1001 Unfavorable

Total Factory Overhead Cost Variance

= Variable Factory Overhead Controllable Variance + Fixed Factory Overhead Volume Variance

= $295 F - $1001 U

= $706 Unfavorable

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