In: Accounting
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 uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are:
Total | Per Set of Covers |
||||
Direct materials | $ | 39,798 | $ | 20.10 | |
Direct labor | $ | 5,940 | 3.00 | ||
Variable manufacturing overhead (based on direct labor-hours) | $ | 3,168 | 1.60 | ||
$ | 24.70 | ||||
During August, the factory worked only 1,000 direct labor-hours and produced 2,200 sets of covers. The following actual costs were recorded during the month:
Total | Per Set of Covers |
||||
Direct materials (7,400 yards) | $ | 40,700 | $ | 18.50 | |
Direct labor | $ | 8,140 | 3.70 | ||
Variable manufacturing overhead | $ | 3,960 | 1.80 | ||
$ | 24.00 | ||||
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.
1)Material Price variance = Actual material cost - [Actual quantity*standard price per yard]
= 40700 - [7400 * 6.7]
= 40700 - 49580
= -8880 F
Material quantity variance =Standard rate per yard [Actual quantity -standard quantity for actual output]
= 6.7 [ 7400 - (2200*3)]
= 6.7 [7400 - 6600]
=6.7* 800
= 5360 U
working"
Standard price per yard for material = Total standard material cost per cover / standard quantity per cover
= 20.1 /3
= $ 6.7 per yard
2)
Labor rate variance = Actual labor cost - [Actual hours* standard rate per hour]
= 8140 - [1000 * 6]
= 8140 - 6000
= 2140 U
Labor efficiency variance = SR[AH-SH]
= 6[1000 - (2200*.50)]
= 6[1000 - 1100]
= 6* -100
= -600 F
Working :
Standard hours per cover = 990/1980 = .50 hours per cover
Standard labor rate per hour = 3/.50 = $ 6per hour
3)
Variable overhead rate variance = Actual variable cost- [Actual hours*standard variable overhead rate per hour]
= 3960 - [1000 * 3.2]
= 3960 - 3200
= 760 U
Variable overhead efficiency variance =SR[AH-SH]
= 3.2 [1000 - (2200*.50)]
= 3.2[1000-1100]
= 3.2 * -100
= -320 F
Working:
standard variable overhead rate per hour = Standard cost per cover /standard hours per cover
= 1.6/.50
= $ 3.2 per hour