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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	45,738	$	23.10
Direct labor	$	6,930		3.50
Variable manufacturing overhead (based on direct labor-hours)	$	3,168		1.60
			$	28.20

During August, the factory worked only 1,000 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 (10,000 yards)	$	56,000	$	22.40
Direct labor	$	9,250		3.70
Variable manufacturing overhead	$	4,500		1.80
			$	27.90

At standard, each set of covers should require 3.3 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

Part 1

Materials price variance = AQ* (AP − SP)

10000 yards ($5.60 per yard− $7.00 per yard) = $14000 F

$56000 ÷ 10000 yards = $5.60 per yard

23.10 ÷ 3.30 yards = $7.000 per yard

Materials quantity variance = SP* (AQ − SQ)

$7.00 per yard (10000 yards − 5,250 yards) = $12250 U

2,500 sets × 3.30 yards per set = 8250 yards

Part 2

Labor rate variance = AH *(AR − SR)

1,000 hours ($9.25 per hour − $7.00 per hour) = $2250 U

$9250 ÷ 1,000 hours = $9.25 per hour

990 standard hours ÷ 1,980 sets = 0.5 standard hour per set, $3.50 standard cost per set ÷ 0.5 standard hours per set = $7 standard rate per hour. 2,500 sets × 0.5 standard hours per set = 1,250 standard hours.

Labor efficiency variance = SR* (AH − SH)

$7.00 per hour (1,000 hours − 1,250 hours) = $1750 F

Part 3

Variable overhead rate variance = AH* (AR − SR)

1,000 hours ($4.50 per hour – $3.20 per hour) = $1300 U

$4500 ÷ 1,000 hours = $4.50 per hour

$1.60 standard cost per set ÷ 0.50 standard hours per set = $3.20 standard rate per hour

Variable overhead efficiency variance = SR (AH − SH)

$3.20 per hour (1,000 hours – 1,250 hours) = $800 F