Accounting

Gulf Coast Resins Company processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 2,600 units of product were as follows:

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Each unit requires 0.6 hour of direct labor.

Instructions

Determine

(a) The price variance, quantity variance, and total direct materials cost variance;

(b) The rate variance, time variance, and total direct labor cost variance; and

(c) Variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance.

SOLUTION:

a. Direct Materials Cost Variance

Price variance:

Actual price $ 6.35 per pound

Standard price 6.40 per pound

Variance—favorable $ (0.05) per pound

× actual quantity, 7,000 $ (350)

Quantity variance:

Actual quantity 7,000 pounds

Standard quantity 6,850 pounds

Variance—unfavorable 150 pounds

× standard price, $6.40 960

Total direct materials cost variance—unfavorable $ 610

b. Direct Labor Cost Variance

Rate variance:

Actual rate $20.20

Standard rate 19.80

Variance—unfavorable $ 0.40 per hour

× actual time, 2,100 $ 840

Time variance:

Actual time 2,100 hours

Standard time 2,050 hours

Variance—unfavorable 50 hours

× standard rate, $19.80 990

Total direct labor cost variance—unfavorable $ 1,830

c. Factory Overhead Cost Variance

Variable factory overhead controllable variance:

Actual variable factory overhead cost incurred $ 4,970

Budgeted variable factory overhead for 2,050 hrs. 5,125

Variance—favorable $ (155)

Fixed factory overhead volume variance:

Normal capacity at 100% 1,950 hours

Standard for amount produced 2,050 hours

Productive capacity used (100) hours

Standard fixed factory overhead cost rate × $4.50

Variance—favorable (450)

Total factory overhead cost variance—favorable $ (605)...