Indicate whether the following costs of Colgate-Palmolive Company, a maker of consumer products, would be classified as direct materials cost

Indicate whether the following costs of Colgate-Palmolive Company, a maker of consumer products, would be classified as direct materials cost, direct labor cost, or factory overhead cost:

a. Maintenance supplies
b. Wages of production line employees
c. Depreciation on production machinery
d. Resins for soap and shampoo products
e. Plant manager salary for the Clarksville, Indiana, soap plant
f. Packaging materials
g. Depreciation on the Morristown, Tennessee, toothpaste plant
h. Wages paid to Packaging Department employees
i. Scents and fragrances
j. Salary of process engineers


Answer:
a. Factory overhead cost
b. Direct labor cost
c. Factory overhead cost
d. Direct materials cost
e. Factory overhead cost
f. Direct materials cost
g. Factory overhead cost
h. Direct labor cost
i. Direct materials cost
j. Factory overhead cost




Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead cost:

a. Steering wheel
b. Salary of test driver
c. Depreciation of welding equipment
d. V8 automobile engine
e. Wages of assembly line worker
f. Steel used in body
g. Tires
h. Assembly machinery lubricants


Answer:
a. Direct materials cost
b. Factory overhead cost
c. Factory overhead cost
d. Direct materials cost
e. Direct labor cost
f. Direct materials cost
g. Direct materials cost
h. Factory overhead cost

The following data relate to the direct materials cost for the production of 2,400 automobile tires:

The following data relate to the direct materials cost for the production of 2,400 automobile tires:

Actual: 53,500 lbs. at $2.60 $139,100

Standard: 55,120 lbs. at $2.50 $137,800

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance.

b.  To whom should the variances be reported for analysis and control?

Answer:

a. Price variance: 

Direct Materials 

Price Variance 

Direct Materials 

Price Variance 

Direct Materials 

Price Variance 

Quantity variance: 

Direct Materials 

Quantity Variance 

Direct Materials 

Quantity Variance 

=   (Actual Price – Standard Price) × Actual Quantity 

=   ($2.60 per lb. – $2.50 per lb.) × 53,500 lbs. 

=   $5,350 Unfavorable 

=   (Actual Quantity – Standard Quantity) × Standard Price 

=   (53,500 lbs. – 55,120 lbs.) × $2.50 per lb. 

Direct Materials 

Quantity Variance 

 

=   –$4,050 Favorable 

Total direct materials cost variance: 

Direct Materials 

Cost Variance   = 

Direct Materials Price Variance + 

Direct Materials Quantity Variance 

Direct Materials 

Cost Variance 

Direct Materials 

Cost Variance 

 

=   $5,350 – $4,050 

=   $1,300 Unfavorable 

b. The direct materials price variance should normally be reported to the 

Purchasing Department, which may or may not be able to control this variance. 

If materials of the same quality were purchased from another supplier at a price 

higher than the standard price, the variance was controllable. However, if the 

variance resulted from a market-wide price increase, the variance was not 

subject to control. 

The direct materials quantity variance should be reported to the proper level of 

operating management. For example, if lower amounts of direct materials had 

been used because of production efficiencies, the variance would be reported 

to the production supervisor. However, if the favorable use of raw materials had 

been caused by the purchase of higher-quality raw materials, the variance 

should be reported to the Purchasing Department. 

The total materials cost variance should be reported to senior plant management, 

such as the plant manager or materials manager.