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PR 22.3.

A: Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis
Adamantane 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 15,000 units of product
were as follows:
Standard Costs Actual Costs
Direct materials 5,000 lbs. at $50.00 4,950 lbs. at $50.60
Direct labor 3,000 hrs. at $25.00 2,945 hrs. at $25.60
Factory overhead Rates per direct labor hr.,
based on 100% of normal
capacity of 3,200 direct
labor hrs.:
Variable cost, $5.50 $16,680 variable cost
Fixed cost, $4.00 $12,800 fixed cost
Each unit requires 0.2 hour of direct labor.
Required:
a. Determine the direct materials price variance, direct materials quantity 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 [(Act.price-Std. Price)*Act.Quantity] $


Unfavorable
=(50.6-50)*4950 =2970

Quantity variance [(Act.QuantityUsed- Std.Quantity)*Std. $


Price] Favorable
=(4950 - 5000)*50 = -2500
$
Total direct materials cost variance Unfavorable

b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost
variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable
variance as a positive number.

Rate variance [(Act. Rate-Std. Rate)*Actual Hour] $


Unfavorable
=(25.60 - 25)*2945 = $ 1,767

Time variance [(Actual Hour - Standard Hour) *Standard $


Rate] Favorable
=(2945-3000)*25 = -1,375
Total direct labor cost variance [(Act.Rate*Act.Hour) –(
Std.Rate* Std.Hour)] $
Unfavorable
= [(2945*25.60) – (3000*25)] = $392

c. Determine the variable factory overhead controllable variance, 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 = (Act. Rate*Act.


$
Hour -Std.Rate*Act.Hour) Unfavorable
== (16680 - 5.50*3000) = 180
Fixed factory overhead volume variance = [(Budgeted Fixed $
Overhead) – (Std.Hour Allowed * Std. Rate)] Unfavorable
= [(4*3200) – (3000*4)] = 800
Total factory overhead cost variance = [Actual Overhead – $
(Standard Overhead rate*Standard Hour)] Unfavorable
=[(16,680+12,800) – ((5.5+4)* 3,000)] = 980
Feedback
Unfavorable variances can be thought of as increasing costs (a debit). Favorable variances can be thought of as
decreasing costs (a credit).
The variable factory overhead controllable variance is the difference between the actual variable overhead costs and
the budgeted variable overhead for actual production.
The fixed factory overhead volume variance is the difference between the budgeted fixed overhead at 100% of
normal capacity and the standard fixed overhead for the actual units produced.
Learning Objective 3, Learning Objective 4.