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 1,000 hours each month to produce 2,000 sets of covers. The standard costs associated with this level of production are:

	Total	Per Set of Covers
Direct Materials	41,400	20.70
Direct Labor	8,000	4.00
Variable Manufacturing Overhead (Based on direct labor hours)	3,400	1.70
		26.40

During August, the factory worked only 1,050 direct labor-hours and produced 2,400 sets of covers. The following actual costs were recorded during the month:

	Total	Per Set of Covers
Direct Materials (7,500 yards)	48,000	20.00
Direct Labor	10,080	4.20
Variable Manufacturing Overhead (Based on direct labor hours)	5,040	1.70
		26.30

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 as Favorbale (F), Unfavorable (U), or None for no effect.

Answer 1

1.
Material Price Variance = (Actual Price - Standard Price) x Actual Quantity
= ($6.40 - 6.90) x 7500 = $3750 (F)
Actual Price = $48000/7500 = $6.40
Standard Price = $41400 / (2000x3) = $6.90

Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (7500 - 2400 x 3) x $6.90 = $2070 (U)

2.
Labor rate variance = Actual labor cost - Actual hours x Standard rate
= $10080 - 1050 x 8 = $1680 (U)
Standard rate = $8000/1000 = $8

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (1050 - 1200) x 8 = $1200 (F)
Standard hours = 1000/2000x2400 = 1200

3.
Variable Overhead rate variance = Actual labor cost - Actual hours x Standard rate
= $5040 - 1050 x 3.4 = $1470 (U)
Standard rate = $3400/1000 = $3.40

Variable Overhead Efficiency Variance = (Actual hours - Standard hours) x Standard rate
= (1050 - 1200) x 3.40 = $510 (F)
Standard hours = 1000/2000x2400 = 1200