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 4,400 units of product were as follows: Standard Costs Actual Costs Direct materials 5,700 lb. at $5.20 5,600 lb. at $5.10 Direct labor 1,100 hrs. at $16.60 1,130 hrs. at $16.90 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,150 direct labor hrs.: Variable cost, $4.10 $4,460 variable cost Fixed cost, $6.50 $7,475 fixed cost 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 Favorable Fixed factory overhead volume variance Unfavorable Total factory overhead cost variance Unfavorable
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Direct Materials, Direct Labor, and
Mackinaw Inc. processes a base chemical into plastic.
Standard Costs | Actual Costs | ||
Direct materials | 5,700 lb. at $5.20 | 5,600 lb. at $5.10 | |
Direct labor | 1,100 hrs. at $16.60 | 1,130 hrs. at $16.90 | |
Factory overhead | Rates per direct labor hr., | ||
based on 100% of normal | |||
capacity of 1,150 direct | |||
labor hrs.: | |||
Variable cost, $4.10 | $4,460 variable cost | ||
Fixed cost, $6.50 | $7,475 fixed cost |
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 | Favorable | |
Fixed factory overhead volume variance | Unfavorable | |
Total factory overhead cost variance | Unfavorable |
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