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 1,055 hours each month to produce 2,110 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	51,273	$	24.30
Direct labor	$	10,550		5.00
Variable manufacturing overhead (based on direct labor-hours)	$	4,853		2.30
			$	31.60

During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,800 yards)	$	49,980	$	23.80
Direct labor	$	10,920		5.20
Variable manufacturing overhead	$	5,460		2.60
			$	31.60

At standard, each set of covers should require 3.0 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

Part-1) Material Price Variance = [Actual Quantity * (Actual Cost Per unit - Standard Cost per unit)]

Material Price Variance = [2,100 * ($23.80 - $24.30)] = [2100 * $0.5] = $1050 Favorable

　

　

Material Quantity Variance = [Standard Cost Per Unit * (Actual Quantity - Standard Quantity)]

Material Quantity Variance = [$24.30 * (2100-2110)] = $243 Unfavorable

　

Part-2)

Labor Rate Variance = [Actual Hours * (Actual Rate - Standard Rate)]
Labor Rate Variance = [1000 * ($5.2 - $5.0)] = $200 Unfavorable

　

Labor Efficiency Variance = [Standard Rate * (Actual Hours - Standard Hours)]
Labor Efficiency Variance = [$5.00 * (1000 H - 1055 H)] = $275 Favorable

　

Part-3)

Standard Rate = $4853 / 1055 H = $4.6
Actual Rate = $5460 / 1000 H = $5.46

Variable Overhead Rate Variance = [Actual Hours * (Standard Rate - Actual Rate)]

Variable Overhead Rate Variance = [1000 H * ($4.6 - $5.46)] = 860 Unfvaorable

Variable Overhead Efficiency Variance = [Standard Rate * (Standard Hours on Actual Quantity - Actual Hours)]
Variable Overhead Efficiency Variance = [ $4.6 * (((1055 H / 2110 set)*2100 set) - 1000 H] = $4.6 * (1050 H - 1000 H) = 230 Favorable