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 1,060 hours each month to produce 2,120 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	43,460	$	20.50
Direct labor	$	9,540		4.50
Variable manufacturing overhead (based on direct labor-hours)	$	4,664		2.20
			$	27.20

During August, the factory worked only 500 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 (8,000 yards)	$	44,000	$	20.00
Direct labor	$	10,340		4.70
Variable manufacturing overhead	$	5,500		2.50
			$	27.20

At standard, each set of covers should require 2.5 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

Solution 1:-

Standard price per yard = $20.50 ÷ 2.50 yards = $8.2 per yard

Standard quantity= 2,200 sets × 2.50 yards per set = 5,500 yards

Actual price per yard = $44000/8000=$5.5 per yard

Actual quantity = 8000 yard

Materials price variance = AQ (AP − SP)

= 8,000 yards ($5.50 per yard* − $8.20 per yard)

= $21,600 Unfavourable

Materials quantity variance = SP (AQ − SQ)

= $8.20 per yard (8,000 yards − 5,500 yards)

= $20,500 Unfovourable

Solution 2:-

Standard hour per set = 1060 standard hours ÷ 2120 sets = 0.50

Standard rate per hour= $4.50 standard cost per set ÷ 0.5 standard hours per set = $9 .00

Standard hours = 2,120 sets × 0.5 standard hours per set = 1,060

Actual rate = $10,340/500 hours =$20.68

Actual hours worked = 500

Labor rate variance = AH (AR − SR)

= 500 hours ($20.68 per hour* − $9 per hour)

= $5840 Unfavourable

Labor efficiency variance = SR (AH − SH)

= $9.00 per hour (500 hours − 1,060 hours)

= $5040 Favourable

Solution 3:-

Standard rate per hours = $2.20 standard cost per set ÷ .50 standard hours per set = $4.40

Standard hours = 1060

Actual Hours = 500

Actual rate =$5500/500 =$11.00

Variable overhead rate variance = AH (AR − SR)

= 500 hours ($11.00 per hour* – $4.40 per hour)

= $3300 Unfavourable

Variable overhead efficiency variance = SR (AH − SH)

$4.40 per hour (500 hours – 1,060 hours)

= $2464 Favourable