Direct Materials, Direct Labor, and Factory Overhead Cost Variance AnalysisMackinaw 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: Standard CostsActual CostsDirect materials8,800 lb. at $5.608,700 lb. at $5.50Direct labor1,700 hrs. at $18.501,740 hrs. at $18.70Factory overheadRates per direct labor hr., based on 100% of normal capacity of 1,770 direct labor hrs.: Variable cost, $4.10$6,900 variable cost Fixed cost, $6.50$11,505 fixed costEach unit requires 0.25 hour of direct labor. ### Variance Analysis in Cost AccountingVariance analysis is a crucial aspect of cost accounting, aiding businesses in understanding differences between planned and actual performance. Below, we'll explore the different types of variances typically analyzed in manufacturing and production contexts. #### a. Direct Materials Variances1. **Price Variance** - This measures the difference between the expected cost of direct materials and the actual cost incurred. - Formula: $ \text{Direct materials price variance} = \left( \text{Actual Price} - \text{Standard Price} \right) \times \text{Actual Quantity Used} $ - Input Field: `$ [ ]` 2. **Quantity Variance** - This assesses the efficiency of material usage. - Formula: $ \text{Direct materials quantity variance} = \left( \text{Actual Quantity Used} - \text{Standard Quantity Allowed} \right) \times \text{Standard Price} $ - Input Field: `$ [ ]` 3. **Total Cost Variance** - This combines both price and quantity variances to provide a comprehensive overview. - Input Field: `$ [ ]`#### b. Direct Labor Variances1. **Rate Variance** - Evaluates the cost efficiency related to labor. - Formula: $ \text{Direct labor rate variance} = \left( \text{Actual Rate} - \text{Standard Rate} \right) \times \text{Actual Hours Worked} $ - Input Field: `$ [ ]` 2. **Time Variance** - Measures the efficiency of labor time used. - Formula: $ \text{Direct labor time variance} = \left( \text{Actual Hours Worked} - \text{Standard Hours Allowed} \right) \times \text{Standard Rate} $ - Input Field: `$ [ ]` 3. **Total Labor Cost Variance** - Encompasses both rate and time variances to reflect overall labor cost efficiency. - Input Field: `$ [ ]`#### c. Factory Overhead Variances1. **Variable Overhead Controllable Variance** - This shows the control over variable overhead costs. - Input Field: `$ [ ]` 2. **Fixed Overhead Volume Variance** - Indicates the efficiency of fixed overhead allocation. - Input Field: `$ [ ]`

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Description: Direct Materials, Direct Labor, and Factory Overhead Cost Variance AnalysisMackinaw 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

Answer a: Direct materials price variance: =AQ×(AR-SR)=8700×($5.50-$5.60)=$870(F) Direct materials…

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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 6,800 units of product were as follows:

	Standard Costs	Actual Costs
Direct materials	8,800 lb. at $5.60	8,700 lb. at $5.50
Direct labor	1,700 hrs. at $18.50	1,740 hrs. at $18.70
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,770 direct
	labor hrs.:
		Variable cost, $4.10	$6,900 variable cost
		Fixed cost, $6.50	$11,505 fixed cost

Each unit requires 0.25 hour of direct labor.

### Variance Analysis in Cost Accounting

Variance analysis is a crucial aspect of cost accounting, aiding businesses in understanding differences between planned and actual performance. Below, we'll explore the different types of variances typically analyzed in manufacturing and production contexts.

#### a. Direct Materials Variances

1. **Price Variance**
- This measures the difference between the expected cost of direct materials and the actual cost incurred.
- Formula: $ \text{Direct materials price variance} = \left( \text{Actual Price} - \text{Standard Price} \right) \times \text{Actual Quantity Used} $
- Input Field: `$ [ ]`

2. **Quantity Variance**
- This assesses the efficiency of material usage.
- Formula: $ \text{Direct materials quantity variance} = \left( \text{Actual Quantity Used} - \text{Standard Quantity Allowed} \right) \times \text{Standard Price} $
- Input Field: `$ [ ]`

3. **Total Cost Variance**
- This combines both price and quantity variances to provide a comprehensive overview.
- Input Field: `$ [ ]`

#### b. Direct Labor Variances

1. **Rate Variance**
- Evaluates the cost efficiency related to labor.
- Formula: $ \text{Direct labor rate variance} = \left( \text{Actual Rate} - \text{Standard Rate} \right) \times \text{Actual Hours Worked} $
- Input Field: `$ [ ]`

2. **Time Variance**
- Measures the efficiency of labor time used.
- Formula: $ \text{Direct labor time variance} = \left( \text{Actual Hours Worked} - \text{Standard Hours Allowed} \right) \times \text{Standard Rate} $
- Input Field: `$ [ ]`

3. **Total Labor Cost Variance**
- Encompasses both rate and time variances to reflect overall labor cost efficiency.
- Input Field: `$ [ ]`

#### c. Factory Overhead Variances

1. **Variable Overhead Controllable Variance**
- This shows the control over variable overhead costs.
- Input Field: `$ [ ]`

2. **Fixed Overhead Volume Variance**
- Indicates the efficiency of fixed overhead allocation.
- Input Field: `$ [ ]`

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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