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 1,065 hours each month to produce 2,130 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	35,358	$	16.60
Direct labor	$	8,520		4.00
Variable manufacturing overhead (based on direct labor-hours)	$	3,195		1.50
			$	22.10

During August, the factory worked only 1,050 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,000 yards)	$	43,740	$	16.20
Direct labor	$	11,340		4.20
Variable manufacturing overhead	$	5,670		2.10
			$	22.50

At standard, each set of covers should require 2.0 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

1	Calculation of material price Variance
	Actual Qty*Actual Unit cost=2700*$16.2
	Standard price= $16.6
	Actual Quantity=2700
	Material price variance                          =	(Actual Quantity purchased*Actual unit cost)-(Actual Quantity purchased*Standard price)
	=	2700*16.20-(2700*$16.6)
	=	$43740-$ 44820
	=	$ -1080 F
	Here, the variance is favourable because the actual price is less than the standard price
2	Calculation of material Efficiency Variance
	Material Efficiency Variance               =	(Actual unit usage-Standard unit usage)*Standard cost
	=	(6000-(2700*2))*16.6
	=	600*16.6
		$9960 U
	Here, the variance is Unfavourable
3	Calculation of Labour price Variance
	Actual Hours            =1050
	Actual Rate              =$ 4.2
	Standard Rate         =$ 4
	Standard Hours     =1065
	Labour Price Variance                          =	(Actual Hours*Actual Rate) -(Actual Hours*Standard Rate)
	=	(1050*$ 4.2)-(1050*$4)
	=	4,410-4,200
	=	$ 210 U
	Here, the variance is Unfavourable
4	Calculation of Labour Efficiency Variance
	Labour Efficiency Variance                 =	(Actual Hours-Standard Hours)*Standard cost
	=	(1050-1065)*$4
	=	$ -60 F
	Here, the variance is favourable
5	Calculation of overhead rate variance
	Actual Overhead         =5670
	Actual Overhead cost          =$ 2.1
	Standard Cost     =$ 1.5
	Standard Overhead    =$ 3195
	Overhead price variance                          =	(Actual Hours worked*Actual unit cost)-(Actual Hours worked*Standard price)
	=	1050*$ 2.1-(1050*$ 1.5)
	=	$ 2205- $ 1575
	=	$ 630 U
	Here, the variance is Unfavourable
6	Calculation of overhead efficiency variance
	Overhead Efficiency Variance             =	(Actual Hours worked -Standard Hours)*Standard cost
	=	(1050-1065)*1.5
	=	$ -22.5 F
	Here, the variance is favourable