Question

In: Accounting

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat...

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 1,230 hours each month to produce 2,050 sets of covers. The standard costs associated with this level of production are:

Total Per Set
of Covers
Direct materials $ 27,675 $ 13.50
Direct labor $ 8,610 4.20
Variable manufacturing overhead (based on direct labor-hours) $ 4,920 2.40
$ 20.10

During August, the factory worked only 750 direct labor-hours and produced 1,500 sets of covers. The following actual costs were recorded during the month:

Total Per Set
of Covers
Direct materials (3,900 yards) $ 19,500 $ 13.00
Direct labor $ 6,600 4.40
Variable manufacturing overhead $ 4,800 3.20
$ 20.60

At standard, each set of covers should require 1.8 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.

Solutions

Expert Solution

  • Working data

Actual DATA for

1500

units

Quantity (AQ)

Rate (AR)

Actual Cost

Direct Material

3900

$                   5.00

$           19,500.00

Direct labor

750

$                   8.80

$             6,600.00

Variable Overhead

750

$                   6.40

$             4,800.00

Standard DATA for

1500

units

Quantity (SQ)

Rate (SR)

Standard Cost

[A]

[B]

[A x B]

Direct Material

( 1.8 yards x 1500 units)=2700 yards

$                   7.50

$       20,250.00

Direct labor

( 0.6 hours x 1500 units)=900 hours

$                   7.00

$         6,300.00

Variable Overhead

( 0.6 hours x 1500 units)=900 hours

$                   4.00

$         3,600.00

  • Requirements

Material Price Variance

$                                                     9,750.00

Favourable-F

Material Quantity Variance

$                                                     9,000.00

Unfavourable-U

Labor Rate Variance

$                                                     1,350.00

Unfavourable-U

Labour Efficiency Variance

$                                                     1,050.00

Favourable-F

Variable Overhead Rate Variance

$                                                     1,800.00

Unfavourable-U

Variable Overhead Efficiency Variance

$                                                        600.00

Favourable-F

  • Calculations

Material Price Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Quantity

(

$                                7.50

-

$                       5.00

)

x

3900

9750

Variance

$              9,750.00

Favourable-F

Material Quantity Variance

(

Standard Quantity

-

Actual Quantity

)

x

Standard Rate

(

2700

-

3900

)

x

$                           7.50

-9000

Variance

$              9,000.00

Unfavourable-U

Labor Rate Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Labor Hours

(

$                                7.00

-

$                       8.80

)

x

750

-1350

Variance

$              1,350.00

Unfavourable-U

Labour Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

900

-

750

)

x

$                           7.00

1050

Variance

$              1,050.00

Favourable-F

Variable Overhead Rate Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Labor Hours

(

$                                4.00

-

$                       6.40

)

x

750

-1800

Variance

$              1,800.00

Unfavourable-U

Variable Overhead Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

900

-

750

)

x

$                           4.00

600

Variance

$                  600.00

Favourable-F


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