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.

Answer 1

(1) Material Price & Quantity Variance:-

          Actual Quantity = 6800 yards

      Actual price = 49980/6800 = 7.35 per yd

   Std Quantity for actual output = 2100*3 = 6300 yds

Std price = 24.3/3 = 8.1 per yd

Material Price Variance = (SR – AR) * Actual Qty

                                      = (8.1 – 7.35) * 6800 = 5100 (F)

Material Quantity Variance = (Std Qty – Actual Qty ) * SR

                          =(6300 – 6800) * 8.1 = 4050 (U)

(2) Labour Rate & Efficiency Variance :-

         Actual Hrs = 1000

          Actual rate = 10920/1000 = 10.92

          Std Hrs = 2100*0.5 = 1050

          Std price = 10550/1055 = 10

Labour Rate Variance = (SR – AR) * Actual Hrs

                           = (10 – 10.92) * 1000 = 920 (U)

Labour Efficiency Variance = (Std Hrs – Actual Hrs) * SR

                   = (1050 – 1000) * 10 = 500 (F)

(3) Variable O/H Rate & Efficiency Variance :-

            Std rate = 4853/1055 = 4.6

           Actual rate = 5460/1000 = 5.46

   Variable O/H Rate Variance = (SR – AR) * Actual Hrs

          = (4.6 – 5.46) * 1000 = 860 (U)

Variable O/H Efficiency Variance = (Std Hrs – Actual Hrs) * SR

                = (1050-1000) * 4.6 = 230 (F)