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
Total $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

Total $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.)

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Answer 1

1)Direct Material Efficiency Variance=Standard Rate*(Standard Quantity-Actual Quantity)

6.7$*(6,600yards-7,400yards)=-5,360$ unfavourable

2)Direct Material Price Variance=Actual Quantity*(Standard Rate-Actual Rate)

7400yards(6.7$-5.5$)=8,880$ Favourable

working:

standard quantity=6,600yards

standard yards required per one set*Actual sets produced

3yards*2,200sets=6,600yards

standard rate per yard=6.7$

given standard rate per unit=20.1$

given standard yards required per unit=3yards

so standard rate per yard=20.1$/3yards

Actual rate per yard=5.5$

Actual purchase cost of material=40,700$

Actual quantity of yards purchased=7,400yards

so Actual rate per yard=40,700$/7,400yards

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

6$*(1,100hours-1,000hours)=600$ Favourable

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

1,000hours(6$-8.14$)=-2,140$ unfavourable

working:

standard rate per hour=6$ (5,940$/990hours)

Actual rate per hour=8.14$ (8,140$/1,000hours)

Standard labor hours=(Actual output*standard hours required per unit

i.e2,200sets*0.5hours=1,100hours

actual output=2,200sets

standard hours per unit=990hours/1980sets

                       =0.5hours

5)Variable overhead Efficiency Variance= Standard Rate*(Standard Hours-Actual Hours)

3.2$(1,100-1,000)=320$ Favourable

6)Variable overhead Rate Variance=Actual Hours*(Standard Rate-Actual Rate)

1,000hours*(3.2$-3.96$)=-760$ un favouarble

working:

standard rate hour=3.2$ (3,168$/990hours)

Actual rate per hour=3.96$ (3,960/1,000hours)

standard hours already calculated in labor variance

Actual hours=1,000 hours