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 1,000 hours each month to produce 2,000 sets of covers. The standard costs associated with this level of production are:

  

	Total		Per Set of Covers
Direct materials	$	41,400	$	20.70
Direct labor	$	8,000		4.00
Variable manufacturing overhead (based on direct labor-hours)	$	3,400		1.70
			$	26.40

During August, the factory worked only 1,050 direct labor-hours and produced 2,400 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (7,500 yards)	$	48,000	$	20.00
Direct labor	$	10,080		4.20
Variable manufacturing overhead	$	5,040		2.10
			$	26.30

At standard, each set of covers should require 3.00 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

	Materials price variance Materials quantity variance

2. Compute the labor rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

	Labor rate variance Labor efficiency variance

3. Compute the variable overhead rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

	Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Part 1

Materials price variance = AQ (AP ? SP)

7500 yards ($6.40 per yard* ? $6.90 per yard) = $3750 F

*$48000 ÷ 7500 yards = $6.40 per yard

Standard price per yard = $20.70÷ 3 = 6.90

Materials quantity variance = SP (AQ ? SQ)

$6.90 per yard (7500 yards ? 7200 yards) = $2070 U

SQ = 2400*3 =7200

Materials price variance	3750	F
Materials quantity variance	2070	U

Part 2

Labor rate variance = AH (AR ? SR)

1,050 hours ($9.60 per hour* ? $8.40 per hour) = $1260 U

*$10080 ÷ 1,050 hours = $9.60 per hour SR = 4.20/(1000/2000) = 8.40

Labor efficiency variance = SR (AH ? SH)

$8.40 per hour (1,050 hours ? 1200 hours) = 1260 F SH =2400*0.5 =1200 Labor rate variance 1260 U Labor efficiency variance 1260 F Part 3 Variable overhead rate variance = AH (AR ? SR) 1,050 hours ($4.80 per hour* – $3.40 per hour) = $1470 U *$5040 ÷ 1,050 hours = $4.80 per hour SR = 1.70/0.5 =3.40 Variable overhead efficiency variance = SR (AH ? SH) $3.40 per hour (1,050 hours – 1,200 hours) = 510 F Variable overhead rate variance 1470 U Variable overhead efficiency variance 510 F