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 1,035 hours each month to produce 2,070 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	31,878	$	15.40
Direct labor	$	6,210		3.00
Variable manufacturing overhead (based on direct labor-hours)	$	4,347		2.10
			$	20.50

During August, the factory worked only 500 direct labor-hours and produced 1,700 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (5,000 yards)	$	25,500	$	15.00
Direct labor	$	5,440		3.20
Variable manufacturing overhead	$	4,080		2.40
			$	20.60

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.

Answer 1

1)
	Material Price Variance			$       13,000	F
	Material Quantity Variance			$       12,320	U
2)
	Labor rate Variance			$         2,440	U
	Labor efficiency Variance			$         2,100	F
3)
	Variable Overhead rate Variance			$         1,980	U
	Variable Overhead efficiency Variance			$         1,470	F
Working:
a.	Calculation of standard data
	Direct Materials:
	Standard Total Quantity of Materials				=	Standard Output*Standard material per unit
					=	2070	x	2.0	Yard
					=	4,140
	Standard Price of Material				=	Total standard cost of material/Total standrad quantity
					=	$       31,878	/	4,140
					=	$            7.70
	Direct Labor:
	Standad Labor hour per unit				=	Total standard labor hour/Total standard output
					=	1035	/	2070
					=	0.50	hour
	Standard Labor rate				=	Standard Labor cost/Standard Labor hour
					=	$         6,210	/	1035
					=	$            6.00
	Variable Overhead:
	Variable Overhead rate per hour				=	Total Variable cost/Total direct labor hour
					=	$         4,347	/	1035
					=	$            4.20
a.	Material Price ariance		=	(Standard Price-Actual Price)*Actual Material Quantity
			=	(7.70-5.10)*5000
			=	$       13,000	F
	working:
	actual Price of material		=	$       25,500	/	5000
			=	$            5.10
b.	Material Quantity Variance			=	(Standard Qauntity-actual Quantity)*Standard Price
				=	(3400-5000)*7.70
				=	$         12,320	U
	Working:
	Standard Quantity		=	Actual Output*Standard Material per unit
			=	1700	x	2
			=	3,400
	2)			$            6.00
	Labor rate Variance		=	(Standard rate-Actual rate)*Actual labor hours
			=	(6.00-10.88)*500
			=	$         2,440	U
	working:
	Actual Labor rate		=	Actual Labor cost/Actual Labor hours
			=	$         5,440	/	500
			=	$         10.88
	Labor efficiency Variance		=	(Standard Labor hours-Actual Labor hours)*Standard Labor rate
			=	(850-500)*6.00
			=	$         2,100	F
	Working:
	Standrad Labor hours	=	Actual Output*Standard Labor hour per unit
		=	1700*0.50
		=	850
	3)				$             4.20
	Variable Overhead rate variance			=	(Standard rate-Actual rate)*Actual labor hours
				=	(4.20-8.16)*500
				=	$           1,980	U
	working:
	Actual Variable overhead rate			=	Actual Variable Overhead cost/Actual direct labor hors
				=	$           4,080	/	500
				=	$             8.16
	Variable Overhead Efficiency Variance			=	(Standard labor hours-Actual Labor hours)*Standard Variable overhead rate
				=	=	(850-500)*4.20
				=	=	$         1,470	F