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 uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,030 hours each month to produce 2,060 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	39,140	$	19.00
Direct labor	$	9,270		4.50
Variable manufacturing overhead (based on direct labor-hours)	$	3,502		1.70
			$	25.20

During August, the factory worked only 640 direct labor-hours and produced 1,600 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (5,500 yards)	$	29,920	$	18.70
Direct labor	$	7,520		4.70
Variable manufacturing overhead	$	4,000		2.50
			$	25.90

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

(a): Comutation of Material Price & Quantity Variance

Materials price variance = AQ *(SP-AP) = 5500*($7.60-$5.44) = $1650 F

Materials quantity variance = SP*(SQ-AQ) = $7.60*((1600*2.50)-5500) = $11400 U

(b): Comutation of Labour Rate & Efficiency Variance

Labor rate variance = AH*(SR-AR) = 640*(8.96-11.75) = 1786 UF

Labor efficiency variance = SR*(SH-AH) = 8.96*((1600*0.5)-640) = 1434 F

(c): Comutation of Variable Overhead Rate and Efficiency Variance

Variable OH rate variance = AH*(SR-AR) = 640*(3.40-6.25) = 1824 UF

Variable OH efficiency variance = SR*(SH-AH) = 3.40*((1600*0.5)-640) = 544 F

Working Not

SP=Total Standard Direct Material Cost/ Std Qty

$39140/(Std Prod.X Std yard Required per Unit)

=39140/(2060X2.5)=$7.60

AP=Total Actual Direct Material Cost/ Actual Qty

$29920/5500=$5.44

Actual Rate per Hour= 7520/640=$11.75

Std Rate per Hour= 9270/1030=$8.96

Std Hour Require for Actual Unit=Sd Hour/Std Production

=1030/2060=0.5 Hour

Actual Variable OH Rate per Hour= 4000/640=$6.25

Std Variable OH Rate per Hour= 3502/1030=$3.40