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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Direct materials, direct labor, and factory overhead cost variance

 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:

  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

 Each unit requires 0.3 hour of direct labor.

 Instructions

 Determine (a) the direct materials price variance, direct materials quantity variance, and total direct materials cost variance; (b) the direct labor rate variance, direct labor time variance, and total direct labor cost variance; and (c) the variable factory overhead controllable variance, fixed factory' overhead volume variance, and total factory overhead cost variance.

(a)

To determine

Direct material variances:

The difference between the actual material cost per unit and the standard material cost per unit for the direct material purchased is known as direct material cost variance. The direct material variance can be classified as follows:

    • Direct materials price variance.
    • Direct materials quantity variance.

Direct labor variances:

The difference between the actual labor cost in the production and the standard labor cost for actual production is known as direct labor cost variance. The direct labor variance can be classified as follows:

    • Labor rate variance.
    • Labor time variance.

Variable factory overhead controllable variances:

The difference between the actual variable overhead costs and the standard overhead for actual production is known as the variable factory overhead controllable variances. The variable factory overhead controllable variance is computed as follows:

Variable factory overheadcontrollable variance}(Actual variable factory overheadStandard variable factory overhead )

Fixed factory overhead volume variances:

Factory overhead volume variances refers to the difference between the budgeted fixed overheads at 100% of normal capacity, and the standard fixed overheads for the actual units produced. The factory overhead volume variances can be calculated as follows:

Fixed factory overheadvolume variance}(Standard hours for 100% ofnormal capacityStandardhours for actual units produced)×(Fixed factory overhead rate)

To determine: The direct materials price variance.

Explanation

Determine the direct materials price variance.

Direct materials price variance = [(Actual priceStandard price)× Actual quantity]=[($3

(b)

To determine
The direct labor rate variance, direct labor time variance, and total direct labor cost variance.

(c)

To determine
The variable factory overhead controllable variance.

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