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.

(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.)

Answer 1

			Data for Resource Variance
			Budgeted (2150 Set Covers)	Standard(2500 Set Covers)	Actual(2500 Set Covers)
			Quantity/Hrs	Rate	Amount	Quantity/Hrs	Rate	Amount	Quantity/Hrs	Rate	Amount
		Material	6450	8.5	54825	7500	8.5	63750	12500	4.7	58750
		Labour	1075	10	10750	1250	10	12500	800	16.25	13000
		V. Overhead	1075	5	5375	1250	5	6250	800	8.75	7000
			Total		70950			82500			78750
1. Computation of Variances
a)		Material Price Variance = (Standard Price - Actual Price ) Actual Quantity Purchased
		= (8.5 - 4.7 )* 12500
		47500	F
		Material Quantity Variance = (Standard quantity - Actual Quantity ) Standard Price
		= (7500-12500 )*8.5
		-42500	U
b)		Labour Rate Variance = (Standard Rate - Actual Rate) Actual Hrs Worked
		= (10-16.25)* 800
		-5000	U
		Labour Efficiency Variance = (Standard Hrs. - Actual Hrs) Standard Rate
		= (1250-800 ) *10
		4500	F
c)		Variable Overhead(OH) Rate Variance = (Standard Rate - Actual Rate ) Actual Machine Hrs Worked
		=(5-8.75) * 800
		-3000	U
		Variable OH Efficiency Variance = (Standard hrs. - Actual Hrs) Standard Rate
		= (1250-800)*5
		2250	F
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