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 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 54,825 $ 25.50 Direct labor $ 10,750 5.00 Variable manufacturing overhead (based on direct labor-hours) $ 5,375 2.50 $ 33.00 During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (12,500 yards) $ 58,750 $ 23.50 Direct labor $ 13,000 5.20 Variable manufacturing overhead $ 7,000 2.80 $ 31.50 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

Marvel Parts, Inc.

1.The materials price and quantity variances for August-

Materials price variance = AQ (AP − SP)

$12500 yards ($4.7 per yard1 − $5 per yard) = $3750 F

Materials quantity variance = SP (AQ − SQ)

$5 per yard (12500 yards − 7500 yards2) = $25000U

1. Actual price = $58750÷ 12500 yards = $4.7 per yard.
2. standard quantity for actual production =2,500 sets × 3 yards per set = 7500 yards.

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2.The labor rate and efficiency variances for August -

Labor rate variance = AH (AR − SR)

800 hours ($16.25 per hour1 − $10.00 per hour2) = $5000 U

Labor efficiency variance = SR (AH − SH)

$10.00 per hour (800 hours − 1,250 hours3) = $4500 F

1. Actual Labor rate per hour = $13000÷ 800 hours = $16.25 per hour
2. standard Labor rate per hour = 1075 standard hours ÷ 2150 sets = 0.5 standard hour per set, $5 standard cost per set ÷ 0.5 standard hours per set = $10 standard rate per hour.
3. standard labor hours = 2500 sets × 0.5 standard hours per set = 1250 standard hours.

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3.The variable overhead rate and efficiency variances for August -

Variable overhead rate variance = AH (AR − SR)

800 hours ($8.75 per hour1 – $5.00 per hour) = $3000U

Variable overhead efficiency variance = SR (AH − SH)

$5.00 per hour (800 hours – 1,250 hours) = $2250F

1. actual Variable overhead rate = $7000/800 actual hours = $8.75
2. Standard variable overhead rate = $2.5 standard cost per set ÷ .50 standard hours per set = $5.00 standard rate per hour