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 980 hours each month to produce 1,960 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	32,340	$	16.50
Direct labor	$	6,860		3.50
Variable manufacturing overhead (based on direct labor-hours)	$	1,960		1.00
			$	21.00

During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,000 yards)	$	34,020	$	16.20
Direct labor	$	7,770		3.70
Variable manufacturing overhead	$	3,990		1.90
			$	21.80

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.

(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

• Workings

Actual DATA for		2100	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	6000	$              5.670	$           34,020.00
Direct labor	1000	$                7.77	$             7,770.00
Variable Overhead	1000	$                3.99	$             3,990.00

Standard DATA for		2100	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 2.5 yards x 2100 units)=5250 yards	$                   6.60	$       34,650.00
Direct labor	( 0.5 hours x 2100 units)=1050 hours	$                   7.00	$         7,350.00
Variable Overhead	( 0.5 hours x 2100 units)=1050 hours	$                   2.00	$         2,100.00

• Requirement 1

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        6.60	-	$                       5.67	)	x	6000
	5580
	Variance		$              5,580.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	5250	-	6000	)	x	$                           6.60
	-4950
	Variance		$              4,950.00			Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        7.00	-	$                       7.77	)	x	1000
	-770
	Variance		$                  770.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1050	-	1000	)	x	$                           7.00
	350
	Variance		$                  350.00			Favourable-F

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        2.00	-	$                       3.99	)	x	1000
	-1990
	Variance		$              1,990.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1050	-	1000	)	x	$                           2.00
	100
	Variance		$                  100.00			Favourable-F