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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	39,798	$	20.10
Direct labor	$	5,940		3.00
Variable manufacturing overhead (based on direct labor-hours)	$	3,168		1.60
			$	24.70

During August, the factory worked only 1,000 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 (7,400 yards)	$	40,700	$	18.50
Direct labor	$	8,140		3.70
Variable manufacturing overhead	$	3,960		1.80
			$	24.00

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.

(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

1)

Materials Price Variance = Actual Cost - (Standard Price * Actual Quantity)

= $40,700 - [($20.10 / 3) * 7,400 yards]

= $40,700 - [$6.7 * 7,400)

= $40,700 - $49,580

= -$8,880 Favorable

Materials Quantity Variance = Standard Price * (Actual Quantity - Standard Quantity)

= $6.7 * (7,400 - [2,200 sets * 3])

= $6.7 * (7,400 - 6,600)

= $6.7 * 800

= $5,360 Unfavorable

2)

Direct Labor Rate Variance = Actual Cost - (Standard Rate * Actual Hours)

= $8,140 - [($5,940 / 990 hours) * 1,000 hours]

= $8,140 - ($6 * 1,000)

= $8,140 - $6,000

= $2,140 Unfavorable

Direct Labor Efficiency Variance = Standard Rate * (Actual Hours - Standard Hours)

= $6 * (1,000 hours - [2,200* {990 hours / 1,980 sets}])

= $6 * (1,000 hours - [2,200 * 0.5 hours per set]

= $6 * (1,000 hours - 1,100 hours)

= $6 * 100 hours

= $600 Favorable

3)

Variable overhead rate variance = Actual Cost - (Standard overheads rate * Actual Hours)

= $3,960 - ([$3,168 / 990 hours] * 1,000 hours)

= $3,960 - ($3.2 per hour * 1,000 hours)

= $3,960 - $3,200

= $760 Favorable

Variable overhead efficiency variance = Standard overhead rate * (Actual hours - Standard hours allowed)

= $3.2 * (1,000 - [2,200 sets * 0.5 hours per set as calculated above])

= $3.2 * (1,000 - 1,100 hours)

= $3.2 * 100 hours

= $320 Favorable