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 1,045 hours each month to produce 2,090 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	49,533	$	23.70
Direct labor	$	10,450		5.00
Variable manufacturing overhead (based on direct labor-hours)	$	4,598		2.20
			$	30.90

During August, the factory worked only 800 direct labor-hours and produced 1,900 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,500 yards)	$	44,460	$	23.40
Direct labor	$	9,880		5.20
Variable manufacturing overhead	$	4,560		2.40
			$	31.00

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.

Answer 1

• All working forms part of the answer
• Workings

Actual DATA for		1900	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	6500	$              6.840	$           44,460.00
Direct labor	800	$              12.35	$             9,880.00
Variable Overhead	800	$                5.70	$             4,560.00

Standard DATA for		1900	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 3 yards x 1900 units)=5700 yards	$                   7.90	$       45,030.00
Direct labor	( 0.5 hours x 1900 units)=950 hours	$                10.00	$         9,500.00
Variable Overhead	( 0.5 hours x 1900 units)=950 hours	$                   4.40	$         4,180.00

• Requirement 1

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        7.90	-	$                       6.84	)	x	6500
	6890
	Variance		$              6,890.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	5700	-	6500	)	x	$                           7.90
	-6320
	Variance		$              6,320.00			Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     10.00	-	$                    12.35	)	x	800
	-1880
	Variance		$              1,880.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	950	-	800	)	x	$                        10.00
	1500
	Variance		$              1,500.00			Favourable-F

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        4.40	-	$                       5.70	)	x	800
	-1040
	Variance		$              1,040.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	950	-	800	)	x	$                           4.40
	660
	Variance		$                  660.00			Favourable-F