Direct Materials and Direct Labor, Variance Analysis; Factory Overhead Cost Variance Analysis Route 66 Tire Co. manufactures automobile tires. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 6,000 tires were as follows: Standard Costs Actual Costs Direct materials 7,800 Ibs. at $5.40 7,700 Ibs. at $5.30 Direct labor 1,500 hrs. at $17.90 1,530 hrs. at $18.20 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,560 direct labor hrs. Variable cost, $3.50 $5,200 variable cost Fixed cost, $5.50 $8,560 fixed cost Each tire requires 0.25 hours of direct labor. Required: a. Determine the price variance, quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount. Price variance $ Quantity variance Total direct materials cost variance b. Determine the rate variance, time variance, and total direct labor cost variance. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount. Rate variance Time variance Total direct labor cost variance
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 and Direct Labor,
Route 66 Tire Co. manufactures automobile tires.
| Standard Costs | Actual Costs | |
| Direct materials | 7,800 lbs. at $5.40 | 7,700 lbs. at $5.30 |
| Direct Labor | 1,500 hrs. at $17.90 | 1,530 hrs. at $18.20 |
| Factory Overhead |
Rates per direct labour hr., based on 100% of normal capacity of 1,560 direct labor hrs. |
|
| Variable Cost, $3.50 | $5,200 Variable Cost | |
| Fixed Cost, $5.50 | $8,560 Fixed Cost |
Each tire requires 0.25 hours of direct labor.
Required:
a. Determine the price variance, quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.
| Price variance | $___________ | favorable/unfavorable |
| Quantity variance | ___________ | favorable/unfavorable |
| Total direct materials cost variance | $___________ | favorable/unfavorable |
b. Determine the rate variance, time variance, and total direct labor cost variance. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.
| Rate variance | $___________ | favorable/unfavorable |
| Time variance | ___________ | favorable/unfavorable |
| Total direct labor cost variance | $___________ | favorable/unfavorable |
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 amount, and an unfavorable variance as a positive amount.
| Variable factory overhead controllable variance | $_______________ | favorable/unfavorable |
| Fixed factory overhead volume variance | _______________ | favorable/unfavorable |
| Total factory overhead cost variance | $_______________ | favorable/unfavorable |
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