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 1,055 hours each month to produce 2,110 sets of covers. The standard costs associated with this level of production are as follows:

	Total		Per Set of Covers
Direct materials	$	51,273	$	24.30
Direct labour	$	10,550		5.00
Variable manufacturing overhead       (based on direct labour-hours)	$	4,853		2.30
			$	31.60

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

	Total		Per Set of Covers
Direct materials (6,800 yards)	$	49,980	$	23.80
Direct labour	$	10,920		5.20
Variable manufacturing overhead	$	5,460		2.60
			$	31.60

At standard, each set of covers should require 3.00 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Materials Price Variance:

Materials quantity variance:

2. Compute the labour rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Labour rate variance:

Labour efficiency variance:

3. Compute the variable overhead rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Variable overhead rate variance:

Variable overhead efficiency variance:

Answer 1

1. Computation of Direct material Price Variance and Direct material Quantity Variance

Direct material Price Variance = (Standard Price-Actual Price)*Actual Quantity purchased

Standard price per yard	A = $24.30/3 yard	$8.10
Actual Price per yard	B = $49,980/6,800 yards	$7.35
Actual yard Purchased	C	6,800
Direct material Price Variance	(A-B)*C	$5,100	i.e. Favorable

Direct material Quantity Variance = (Standard Quantity for actual production-Actual quantity used)*Standard Price

Standard Material of yard for actual production	A = 2,100 set of covers*3 yard	6,300
Actual yard used	B	6,800
Standard Price per yard	C	$8.10
Direct material Quantity Variance	(A-B)*C	-$4,050	i.e. Unfavorable

2. Computation of Labor Rate Variance and Labor Efficiency Variance

Direct Labor Price Variance = (Standard Rate-Actual Rate)*Actual hours worked

Standard Rate per hour	A = $10,550/1,055	$10.00
Actual Rate per hour	B = $10,920/1,000	$10.92
Actual hours worked	C	1000
Direct Labor Price Variance	(A-B)*C	-$920	i.e. Unfavorable

Direct labor Efficiency Variance = (Standard hours -Actual hours)*Standard Rate

Standard hour per unit = Total Standard Hours/Total Standard kits = 1,055/2,110 = 0.5 hour

Standard hours for actual production	A = 0.5*2,100	1,050
Actual hours worked	B	1,000
Standard rate per hour	C	$10.00
Direct labor Efficiency Variance	(A-B)*C	$500	i.e. Favorable

3. Computation of Variable Overhead Rate Variance and Variable Overhead Efficiency Variance

Variable Overhead Rate Variance = (Standard Rate-Actual Rate)*Actual hours worked

Standard Rate per hour	A = $4,853/1,055 hours	$4.60
Actual Rate per hour	B = $5,460/1,000 hours	$5.46
Actual hours worked	C	1000
Variable Overhead Rate Variance	(A-B)*C	-$860	i.e. Unfavorable

Variable Overhead Efficiency Variance = (Standard hours -Actual hours)*Standard Rate

Standard hours for actual production	A = 0.5 hour*2,100 units	1,050
Actual hours worked	B	1,000
Standard rate per hour	C	$4.60
Variable Overhead Efficiency Variance	(A-B)*C	$230	i.e. Favorable