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 1,040 hours each month to produce 2,080 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 40,560 $ 19.50 Direct labor $ 7,280 3.50 Variable manufacturing overhead (based on direct labor-hours) $ 4,160 2.00 $ 25.00 During August, the factory worked only 600 direct labor-hours and produced 1,800 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (5,000 yards) $ 34,200 $ 19.00 Direct labor $ 6,660 3.70 Variable manufacturing overhead $ 4,140 2.30 $ 25.00 At standard, each set of covers should require 2.5 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

Solution:

1.) Compute the materials price and quantity variance for August.

Materials price variance	$4,800	F
Materials quantity variance	$3,900	U

Actual quantity of input, at Actual Price (AQ × Ap)		Actual quantity of input at Standard Price (AQ × SP)		Standard quantity allowed for output, at Standard Price (SQ × SP)
$34,200		5,000 yards × $7.8 per yard =$39,000		4,500 yards × $7.8 per yard = $35,100
	Prince variance $4800 F		Quantity variance $3900 U
		Spending variance 900 F

* $19.50/ 2.5 yards = $7.8per yard

1,800 sets × 2.50 yards per set = 4,500 yards

2.) Compute the labor rate and efficiency variance for August.

Labor rate variance	$2,460	U
Labor efficiency variance	$2,100	F

Actual hours of input, at the Actual Rate (AH × AR)		Actual hours of input, at Standard Rate (AH × SR)		Standard hours allowed for output, at the Standard Rate (SH ×SR)
$6,660		600 hours × $7 per hour =$4,200		900 hours × $7 per hour = $6,300
	Rate variance $2,460 U		Efficiency variance $2,100 F
		Spending variance $360

* 1040 standard hours / 2080 sets =0.5 standard hour per set, $3.50 standard cost per set / 0.5 standard per set =$7 standard rate per hour.

1,800 sets × 0.5 standard hours per set = 900 standard hours.

3.) Compute the variable overhead rate and efficiency variance for August.

Variable overhead rate variance	$1,740	U
Variable overhead efficiency variance	$1,200	F

Actual hours of input at the Actual Price (AH × AR)		Actual hours of input at the Standard Rate (AH × SR)		Standard hours allowed for output, at the Standard Rate (SH × SR)
$4,140		600 hours × $4.00 per hour = $2,400		900 hours × $4 per hour =$3,600
	Rate variance, $1,740 U		Efficiency variance =$1,200 F
		Spending variance, $540U

* $2.00 standard cost per set / 0.5 standard hours per set =$4.00 standard rate per hour