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 1,060 hours each month to produce 2,120 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	43,460	$	20.50
Direct labor	$	9,540		4.50
Variable manufacturing overhead (based on direct labor-hours)	$	4,664		2.20
			$	27.20

During August, the factory worked only 500 direct labor-hours and produced 2,200 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (8,000 yards)	$	44,000	$	20.00
Direct labor	$	10,340		4.70
Variable manufacturing overhead	$	5,500		2.50
			$	27.20

At standard, each set of covers should require 2.5 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.

Answer 1

Req a:
Std qty alowed for actual output (2200*2.50)					5500
Std price per unit(20.50/2.50)					8.2
Actual qty purchhased and used					8000
Actual price per unit (44000/8000)					5.5
Material qty variance = Std price (Std qty-Actual qty)
		8.20 (5500-8000) = 20500 Unfav
Material Price variance = Actual qty (Std price - Actual price)
		8000 (8.2-5.5) = 21600 Fav
Req b:
Std labour hours for actual output (2200*0.50): 1100
Std labour rate per unit (4.5/0.50) = 9.00
Actual hours: 500
Actual rate per hour (10340/500): 20.68 per hour
labour efficiency variance = Std rate (Std hours-Actual hours)
		9.00 (1100-500) = 5400 Fav
Labour rate variance = Actual hours (Std rate-Actual rate)
		500 (9.00-20.68) = 5840 Unfav
Req c:
Std OH rate (2.20/0.5): 4.40
Actual OH rate (5500/500): 11
Variable OH efficiency variance = Std rate (Std hours-Actual hours)
			4.40 (1100-500) = 2640 Fav
Variable Oh rate variance = Actual hours (Std rate-Actula rate)
		500 (4.40-11 ) = 3300 Unfav