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: Total Per Set of Covers Direct materials $ 51,273 $ 24.30 Direct labor $ 10,550 5.00 Variable manufacturing overhead (based on direct labor-hours) $ 4,853 2.30 $ 31.60 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 (6,800 yards) $ 49,980 $ 23.80 Direct labor $ 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).) 2. Compute the labor 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).) 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).)

Answer 1

1	Materials price variance	$5,100	F
	(AQ x AR) - (AQ x SR) = (6800 x $7.35) - (6800 x $8.10) = $49980 - $55080 = -$5100
	AR = $49980/6800 yards = $7.35
	SR = $51273/(2110 x 3.0 yards) = $51273/6330 = $8.10
	Materials quantity variance	$4,050	U
	(AQ x SR) - (SQ x SR) = (6800 x $8.10) - (6300 x $8.10) = $55080 - $51030 = $4050
	SQ = 2100 sets x 3.0 yards = 6300 yards
2	Labor rate variance	$ 920	U
	(AH x AR) - (AH x SR) = (1000 x $10.92) - (1000 x $10) = $10920 - $10000 = $920
	AR = $10920/1000 hours = $10.92 per hour
	SR = $10550/1055 hours = $10 per hour
	Labor efficiency variance	$ 500	F
	(AH x SR) - (SH x SR) = (1000 x $10) - (1050 x $10) = $10000 - $10500 = -$500
	SH = (1055 hours/2110 sets) x 2100 sets = 0.5 x 2100 = 1050 hours
3	Variable overhead rate variance	$ 860	U
	(AH x AR) - (AH x SR) = (1000 x $5.46) - (1000 x $4.60) = $5460 - $4600 = $860
	AR = $5460/1000 hours = $5.46 per hour
	SR = $4853/1055 hours = $4.60 per hour
	Variable overhead efficiency variance	$ 230	F
	(AH x SR) - (SH x SR) = (1000 x $4.60) - (1050 x $4.60) = $4600 - $4830 = -$230