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)

a.

Material Price Variance

=

(Standard Price - Actual Price)*Actual Quantity

=

(8.30-7.29)*6000

=

$         6,060

F

Working:

Standard Quantity at standard level

=

Standard Production* Standard quantity per unit

=

2130

*

2.0

=

4,260

Standard Material price per unit

=

Total Standard cost/total standard quantity

=

$       35,358

/

4,260

=

$            8.30

Actual Material Price per unit

=

Actual Materials cost/Actual material quantity

=

$       43,740

/

6,000

=

$            7.29

b.

Material Quantity Variance

=

(Standard quantity-Actual Quantity)*Standard Price

=

(5400-6000)*8.30

=

$         4,980

U

Working:

Standard Quantity at actual level

=

Actual Production * Standard quantity per unit

=

2700

*

2.0

=

5,400

2)

a.

Labor rate Variance

=

(Standard rate -Actual rate )*Actual labor hours

=

(8.00-10.80)*1050

=

$         2,940

U

Working:

Standard Labor rate

=

Standard Labor cost/Standard Labor hours

=

$         8,520

/

1065

=

$            8.00

Actual Labor rate

=

Actual Labor cost/Actual Labor rate

=

$       11,340

/

1050

=

$         10.80

b.

Labor efficiency variance

=

(Standard labor hours - Actual Labor hours)*Standard Labor rate

=

(1350-1050)*8.00

=

$         2,400

F

Working:

Standard Labor hours per unit

=

Stanadard labor hours / Standard Production

=

1065

/

2130

=

0.50

hours

Standard labor hours at actual production

=

Actual production x Standard labor hour per unit

=

2700

x

0.50

=

1,350

3)

a.

Variable Overhead rate variance

=

(Standard Rate - Actual rate)*Actual Labor hours

=

(3.00-5.40)*1050

=

$         2,520

U

Working:

Standard Variable Overhead rate

=

Standard Variable cost / Standard Variable overhead hours

=

$         3,195

/

1065

=

$            3.00

Actual Variable overhead rate

=

Actual Variable Overhead / Actual labor hours

=

$         5,670

/

1050

=

$            5.40

b.

Variable overhead efficiency variance

=

(Standard hours-Actual hours)*Standard overhead rate

=

(1350-1050)*3.00

=

$             900

F