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 1,045 hours each month to produce 2,090 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	49,533	$	23.70
Direct labor	$	10,450		5.00
Variable manufacturing overhead (based on direct labor-hours)	$	4,598		2.20
			$	30.90

During August, the factory worked only 800 direct labor-hours and produced 1,900 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,500 yards)	$	44,460	$	23.40
Direct labor	$	9,880		5.20
Variable manufacturing overhead	$	4,560		2.40
			$	31.00

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.

Answer 1

Material price Variance=	(SP-AP)*AQ	(7.9-6.84)*6500	6890	Favourable
Material Quantity Variance=	(SQ-AQ)*Sp	(5700-6500)*7.9	6320	Unfavourable
Labour Rate Variance	(SR-AR)*AH	(10-12.35)*800	1880	Unfavourable
Labour Quantity Variance	(SH-AH)*SR	(950-800)*10	1500	Favourable
variable overhead rate	(SR-AR)*AH	(4.4-5.7)*800	1040	Unfavourable
Variable efficiency variances	(SH-AH)*SR	(950-800)4.4	660	Favourable

	Standard Cost			Standard Cost for 1900 Sets Cover			Actual for 1900 Units			Total Variance
	Units	Rate	Total	Units	Rate	Total	Units	Rate	Total
Material	6270	7.90	49,533.00	5700	7.90	45,030.00	6500	6.84	44,460.00	570.00
Labour	1045	10.00	10,450.00	950	10.00	9,500.00	800	12.35	9,880.00	(380.00)
Overhead	1,045.00	4.40	4,598.00	950	4.40	4,180.00	800	5.70	4,560.00	(380.00)

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