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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