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 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	54,825	$	25.50
Direct labor	$	10,750		5.00
Variable manufacturing overhead (based on direct labor-hours)	$	5,375		2.50
			$	33.00

During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (12,500 yards)	$	58,750	$	23.50
Direct labor	$	13,000		5.20
Variable manufacturing overhead	$	7,000		2.80
			$	31.50

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

1)

	Standard Price	-	Actual Price	x	Actual Quantity	=	Variance
Materials Price Variance	$                          8.50	-	$                    4.70	x	12,500.00	=	$ 47,500.00	Favorable
	Standard Quantity	-	Actual Quantity	x	Standard Price	=	Variance
Materials Quantity Variance	7,500.00	-	12,500.00	x	$                    8.50	=	$ 42,500.00	Unfavorable

Standard quantity = 2,500 x 3 = 7,500

Standard Price = 25.50/3 = 8.50

2)

	Standard Rate	-	Actual Rate	x	Actual Quantity	=	Variance
Labor Rate Variance	$                       10.00	-	$                  16.25	x	800.00	=	$      5,000.00	Unfavorable
	Standard Quantity	-	Actual Quantity	x	Standard Rate	=	Variance
Labor Efficiency Variance	1,250.00	-	800.00	x	$                  10.00	=	$      4,500.00	Favorable

Standard Rate = 1075/2150 = 0.50 ... 5/0.50 = 10

3)

	Standard Rate	-	Actual Rate	x	Actual Quantity	=	Variance
Variable Overhead Rate Variance	$                          5.00	-	$                    8.75	x	800.00	=	$      3,000.00	Unfavorable
	Standard Quantity	-	Actual Quantity	x	Standard Rate	=	Variance
Variable Overhead Efficiency Variance	1,250.00	-	800.00	x	$                    5.00	=	$      2,250.00	Favorable