Question

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	54,825	$	25.50
Direct labor	$	10,750		5.00
Variable manufacturing overhead (based on direct labor-hours)	$	5,375		2.50
			$	33.00

During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (12,500 yards)	$	58,750	$	23.50
Direct labor	$	13,000		5.20
Variable manufacturing overhead	$	7,000		2.80
			$	31.50

At standard, each set of covers should require 3.0 yards of material. All of the materials purchased during the month were used in production.

Required:

1. Compute the materials price and quantity variances for August.

2. Compute the labor rate and efficiency variances for August.

3. Compute the variable overhead rate and efficiency variances for August.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

• All working forms part of the answer
• Working

Actual DATA for		2500	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	12500	$              4.700	$           58,750.00
Direct labor	800	$              16.25	$           13,000.00
Variable Overhead	800	$                8.75	$             7,000.00

Standard DATA for		2500	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 3 yards x 2500 units)=7500 yards	$                   8.50	$       63,750.00
Direct labor	( 0.5 hours x 2500 units)=1250 hours	$                10.00	$       12,500.00
Variable Overhead	( 0.5 hours x 2500 units)=1250 hours	$                   5.00	$         6,250.00

• Requirement 1

Material Price Variance
(		Standard Rate			-	Actual Rate				)	x	Actual Quantity
(		$                        8.50			-	$                       4.70				)	x	12500
		47500
		Variance				$            47,500.00						Favourable-F
Material Quantity Variance
(	Standard Quantity		-	Actual Quantity			)	x	Standard Rate
(	7500		-	12500			)	x	$                           8.50
	-42500
	Variance			$            42,500.00					Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     10.00	-	$                    16.25	)	x	800
	-5000
	Variance		$              5,000.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1250	-	800	)	x	$                        10.00
	4500
	Variance		$              4,500.00			Favourable-F

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        5.00	-	$                       8.75	)	x	800
	-3000
	Variance		$              3,000.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1250	-	800	)	x	$                           5.00
	2250
	Variance		$              2,250.00			Favourable-F