Question

9. 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 980 hours each month to produce 1,960 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 32,340 $ 16.50 Direct labor $ 6,860 3.50 Variable manufacturing overhead (based on direct labor-hours) $ 1,960 1.00 $ 21.00 During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (6,000 yards) $ 34,020 $ 16.20 Direct labor $ 7,770 3.70 Variable manufacturing overhead $ 3,990 1.90 $ 21.80 At standard, each set of covers should require 2.5 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.)

10.Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 3 feet $ 5 per foot $ 15 Direct labor ? hours ? per hour ? During March, the company purchased direct materials at a cost of $45,375, all of which were used in the production of 2,350 units of product. In addition, 4,800 direct labor-hours were worked on the product during the month. The cost of this labor time was $50,400. The following variances have been computed for the month: Materials quantity variance $ 2,250 U Labor spending variance $ 3,400 U Labor efficiency variance $ 1,000 U Required: 1. For direct materials: a. Compute the actual cost per foot of materials for March. b. Compute the price variance and the spending variance. 2. For direct labor: a. Compute the standard direct labor rate per hour. b. Compute the standard hours allowed for the month’s production. c. Compute the standard hours allowed per unit of product.

11. ohn Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital’s lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs. Mr. Fleming has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available: Two types of tests are performed in the lab—blood tests and smears. During the past month, 750 blood tests and 3,000 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 15,000 plates at a cost of $48,450. 2,000 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month. During the past month, 2,000 hours of labor time were recorded in the lab at a cost of $21,600. The lab’s variable overhead cost last month totaled $15,200. Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs: Plates: Three plates are required per lab test. These plates cost $3.40 each and are disposed of after the test is completed. Labor: Each blood test should require 0.8 hours to complete, and each smear should require 0.40 hours to complete. The average cost of this lab time is $11.20 per hour. Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $7.10 per hour. Required: 1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month. 2. For labor cost in the lab: a. Compute a labor rate variance and a labor efficiency variance. b. In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued? 3-a. Compute the variable overhead rate and efficiency variances. 3-b. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance?

12. Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May. Standard Cost per Unit Actual Cost per Unit Direct materials: Standard: 1.80 feet at $2.20 per foot $ 3.96 Actual: 1.75 feet at $2.40 per foot $ 4.20 Direct labor: Standard: 0.90 hours at $14.00 per hour 12.60 Actual: 0.95 hours at $13.40 per hour 12.73 Variable overhead: Standard: 0.90 hours at $5.00 per hour 4.50 Actual: 0.95 hours at $4.60 per hour 4.37 Total cost per unit $ 21.06 $ 21.30 Excess of actual cost over standard cost per unit $ 0.24 The production superintendent was pleased when he saw this report and commented: “This $0.24 excess cost is well within the 5 percent limit management has set for acceptable variances. It's obvious that there's not much to worry about with this product." Actual production for the month was 13,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials. Required: 1. Compute the following variances for May: a. Materials price and quantity variances. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. How much of the $0.24 excess unit cost is traceable to each of the variances computed in (1) above. 3. How much of the $0.24 excess unit cost is traceable to apparent inefficient use of labor time?

Answer 1

	Marvel Parts Inc.
		Total	Per set of covers
	Standard Cost
	Direct Material	32340	16.5
	Direct Labor	6860	3.5
	Variable Manufacturing Overhead	960	1
			21
	Standard each set required	2.5	Yards of material
	Standard Price=($16.50/2.5)	6.6	Per yards
	Standard Hours	980
	Standard Production	1960	Sets
	Actual Hours	1000
	Actual Production	2100	Sets
	Standard Quantity=(2100*2.50 yards)	5250
		Total	Per set of covers
	Actual cost
	Direct Material(6000 yards)	34020	16.2
	Direct Labor	7770	3.7
	Variable manufacturing overhead	3990	1.9
			21.8
	Material Quantity Variance(AQ*SP)-(SQ*SP)=6000*$6.60-5250*$6.60=	4950	(U)
	Material Price Variance=(AQ*AP)-(AQ*SP)=$32340-6000*$6.6	-5580	(F)
	Material Spending Variance=Material Quantity variance+Material Price variance=4950(U)+5580(F)	630	(F)
	Standard Hours per set=(980/1960)	0.5
	Stanard Direct labor cost	3.5
	Stanadrd labor rate per hour=($3.5/.50)	7
	Standard Hours=(2100*.50)=	1050
	Direct Labor Rate Variance(=AH*AR)-(AH*SR)=$7770-(1000*$7)	770	(U)
	Direct Labor Efficiency Variance(=AH*SR)-(SH*SR)=(1000*$7)-(1050*$7)	-350	(F)
	Labor Spending Variance=Direct Labor rate variance+Direct labor Efficiency variance=770(U)+350(F)	420	(U)
	Variable Overhead Rate per hours=($1/.50)	2
	Variable Overhead Rate variance=(AH*AR)-(AH*SR)=($3990-(1000*2)	1990	(U)
	Variable Overhead Efficiency variance=(AH*SR)-(SH*SR)=(1000*$2)-(1050*$2)	-100	(F)
	Variable overhead spending variance=Variable overhead efficiency variance+Variable overhead Rate variance=100(F)+1900(U)	1800	(U)