Question

Problem 8-24A Comprehensive Variance Analysis [LO8-4, LO8-5, LO8-6]

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 980 hours each month to produce 1,960 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$32,340		$16.50
Direct labor	$6,860		3.50
Variable manufacturing overhead       (based on direct labor-hours)	$1,960		1.00
			$21.00

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 (6,000 yards)	$	34,020	$	16.20
Direct labor	$	7,770		3.70
Variable manufacturing overhead	$	3,990		1.90
			$	21.80

At standard, each set of covers should require 2.50 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).)

Materials price variance		F
Materials Quantity Variance		U

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).)

Labor Rate Variance		U
Labor Efficiency Variance		F

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).)

Variable Overhead Rate Variance		U
Variable Overhead Efficiency Variance		F

Answer 1

• All working forms art of the answer
• Working for Standard for Actual output data

	Standard	Standard for Actual
Covers	1960	2100
Yards	2.5 per cover	[2100 x 2.5] 5250 yards
Labor hours	980 hours for 1960 covers = 0.5 hours per cover	[2100 x 0.5] 1050 hours

• Standard Data for Actual output

	Qty	Rate $	Amount $
Direct Material	5250	6.6	34650
Direct Labor	1050	7	7350
Variable manufacturing overhead	1050	2	2100
Total cost			$44100
Total Covers			2100
Standard Cost per cover			$21

• Actual Data for Actual Output

	Qty	Rate $	Amount $
Direct Material	6000	5.67	34020
Direct Labor	1000	7.77	7770
Variable manufacturing overhead	1000	3.99	3990
Total cost			$45780
Total Covers			2100
Actual Cost per cover			$21.8

• Calculation of Variances

Material Price Variance	=	(Standard Rate	-	Actual Rate)	x	Actual material Quantity
Material Price Variance	=	(6.6	-	5.67)	x	6000
Material Price Variance	=	0.93 x 6000
Material Price Variance	=	$5580 Favourable - F
Material Quantity Variance	=	(Standard Quantity	-	Actual Quantity)	x	Standard rate
Material Quantity Variance	=	(5250 yards	-	6000 yards)	x	$6.6
Material Quantity Variance	=	- 750 x 6.6
Material Quantity Variance	=	$4,950 Unfavourable - U
Labor Rate Variance	=	(Standard rate	-	Actual Rate)	x	Actual labor hours
Labor Rate Variance	=	($7	-	$7.77)	x	1000
Labor Rate Variance	=	- 0.77 x 1000
Labor Rate Variance	=	$ 770 Unfavorable - U
Labor Efficiency Variance	=	(Standard hours	-	Actual hours)	x	Standard rate
Labor Efficiency Variance	=	(1050 hours	-	1000 hours)	x	$7
Labor Efficiency Variance	=	50 x 7
Labor Efficiency Variance	=	$350 Favourable - F
Variable Overhead rate Variance	=	(Standard rate	-	Actual Rate)	x	Actual labor hours
Variable Overhead rate Variance	=	($2	-	$3.99)	x	1000
Variable Overhead rate Variance	=	- 1.99 x 1000
Variable Overhead rate Variance	=	$ 1990 Unfavorable - U
Variable Overhead Efficiency variance	=	(Standard hours	-	Actual hours)	x	Standard rate
Variable Overhead Efficiency variance	=	(1050 hours	-	1000 hours)	x	$2
Variable Overhead Efficiency variance	=	50 x 2
Variable Overhead Efficiency variance	=	$100 Favourable - F