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 1,065 hours each month to produce 2,130 sets of covers. The standard costs associated with this level of production are:

  

	Total		Per Set of Covers
Direct materials	$	35,358	$	16.60
Direct labor	$	8,520		4.00
Variable manufacturing overhead       (based on direct labor-hours)	$	3,195		1.50
			$	22.10

  

During August, the factory worked only 1,050 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,000 yards)	$	43,740	$	16.20
Direct labor	$	11,340		4.20
Variable manufacturing overhead	$	5,670		2.10
			$	22.50

  

At standard, each set of covers should require 2.00 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

      

2.	Compute the labor rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

      

3.	Compute the variable overhead rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

     

Answer 1

1. Computation of material price and quantity variance for August:

Material price variance: AQ (AP-SP)

*AQ =43740/6000 = 7.29

**SP = 16.60/2 = $8.3

Material price variance: 6000(7.29-8.3) = $6060F

Material Quantity variance: SP (AQ-SQ) = 8.3[6000 – (2700 Sets x 2 yards of material)]

8.3 [6000 – 5400] = 4980 U

2. Computation of labor rate and efficiency variance for august:

Labor rate variance: AH (AR-SR)

SR = 1065 Standard hours /2130 sets = 0. 5standard hour per set

$4 standard hour per set / 0.5 = $8 standard rate per hours

2700 set cover *0.5 = 1350 standard hours

1050 hours [(11340/1050) - $8]

1050 hours ($10.8 - $8] = 2940 U

Labor efficiency variance:

SR (AH-SH) =$8 (1050-1350) = $2400F

3. Computation of variable overhead and efficiency variances:

AH (AR-SR) = 1050 [(5670/1050)-($1.50/0.5)]

1050 [5.4 -3] =1050*2.4 = 2520 U

Variable overhead efficiency variance:

SR (AH-SH)

$3 per hours (1050 – 1350) = 900 F