Problem 1: Direct Materials, Direct Labor, and Factory Overhead Cost Variance An
ID: 2462978 • Letter: P
Question
Problem 1:
Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis
Eastern Polymers, 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 5,600 units of product were as follows:
Each unit requires 0.25 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.
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.
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 number using a minus sign and an unfavorable variance as a positive number.
Problem 2:
L'Essence Cosmetics Company is planning a one-month campaign for June to promote sales of one of its two cosmetics products. A total of $80,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign:
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 19,000 additional units of moisturizer or 16,000 additional units of perfume could be sold without changing the unit selling price of either product.
1. Prepare a differential analysis as of June 15, 2014, to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter zero "0".
Standard Costs Actual Costs Direct materials 7,800 lbs. at $4.60 7,700 lbs. at $4.50 Direct labor 1,400 hrs. at $16.70 1,430 hrs. at $16.90 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 1,460 direct labor hrs.: Variable cost, $3.90 $5,410 variable cost Fixed cost, $6.20 $9,052 fixed cost Price variance Quantity variance Total direct materials cost variance Favorable - Favorable Favorable -Explanation / Answer
Solution.
A.
Direct materials price variance
DM Price Variance = ( SP AP ) × AQ
= (4.60 - 4.50 ) x 7,700 = $770
Direct materials quantity variance.
DM Quantity Variance = ( SQ AQ ) × SP
= ( 7,800 - 7,700 ) x 4.60
= $460.
Total direct materials cost variance.
Total of Direct materials price variance and Direct materials quantity variance. is called Total direct materials cost variance.
= $770 + $460. = $1,230
B.
Direct labor rate variance.
DL Rate Variance = ( AR SR ) × AH
= (16.70-16.90 ) x 1,430 = 286
Direct labor time variance.
DL Efficiency Variance = ( SH AH ) × SR
= (1,400 - 1,430) x 16.70 = -501
Total direct labor cost variance.
= 286 - 501 = -215.
C.
Variable factory overhead controllable variance.
Actual variable expense:
Actual overhead = 5,410
Fixed expenses budgeted (1,460 × 6.20) = 9.052
Total 14,462
Variable expenses for standard hours allowed (1,400× $3.90) 5,460
Controllable variance 9,002 U