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 1,065 hours each month to produce 2,130 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	35,358	$	16.60
Direct labor	$	8,520		4.00
Variable manufacturing overhead (based on direct labor-hours)	$	3,195		1.50
			$	22.10

During August, the factory worked only 1,050 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,000 yards)	$	43,740	$	16.20
Direct labor	$	11,340		4.20
Variable manufacturing overhead	$	5,670		2.10
			$	22.50

At standard, each set of covers should require 2.0 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.)

	1. Materials price variance $ (F,U, or None) Materials quantity variance 2. Labor rate variance Labor efficiency variance 3. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Standard Material required to produce 2130 units = 2130 * 2 yards = 4260 yards
Standad price of material per yard = $35,358 / 4260 yards = $8.3 per yard
Actual price per yard of material = $43,740 / 6000 yards = $7.29 per yard

1). Material price variance = (Standard price - Actual price) * Actual qty
= ($8.3 - $7.29) * 6000 yards
= $6060 Favorable

2). Material qty variance = (Standard quantity for actual units - Actual qty) * Standard rate
= (2700 sets * 2 yards - 6000 yards) * $8.3
= (5400 yards - 6000 yards) * $8.3
= $4980 Unfavorable

3). Labor rate variance = (Standard rate - Actual rate) * Actual hours
= ($8520/ 1065 hours - $11340 / 1050 hours) * 1050 hours
= ($ 8 - $10.8) * 1050 hours
= $2940 Unfavorable

4). Labor efficiency variance = (Std. hrs for actual units - Actual hours) * Standard rate
= ((1065 hrs * 2700 / 2130) - 1050 hours) * $8
= (1350 hrs - 1050 hrs) * $8
= $2400 Favorable

5). Var. overhead rate variance = (Standard rate - Actual rate) * Actual hours
= ($3195 / 1065 hrs - $5670 / 1050 hrs) * 1050 hrs
= ($3 - $5.4) * 1050 hrs
= $2520 Unfavorable

6). Var. overhead efficiency variance = (Std. hrs for actual units - Actual hours) * Standard rate
= (1350 hrs - 1050 hrs) * $3
= $900 Favorable