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 1,020 hours each month to produce 2,040 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 37,740 $ 18.50 Direct labor $ 9,180 4.50 Variable manufacturing overhead (based on direct labor-hours) $ 2,448 1.20 $ 24.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,900 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (9,100 yards) $ 52,780 $ 18.20 Direct labor $ 13,630 4.70 Variable manufacturing overhead $ 4,640 1.60 $ 24.50 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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Solution:

1 a)

Calculate the material price variance

= Actual quantity *(Standard price - Actual price)

=9,100(7.4 - 5.8)

=9,100*1.6

=$14,560 favorable

Working:

Standard material quantity = Material produced * Required material

=2,040*2.5 = 5,100

Standard price = Standard material cost / Standard material quantity

= 37,740 / 5,100

=$7.4

Actual price = Actual material cost / Actual material quantity

= $52,780 / 9,100

=$5.8

1 b)

Calculate the material quantity variance

=Standard price(Actual quantity - Standard quantity)

=7.4(9,100 -7,250)

=7.4*1,850

=13,690

Standard quantity=Direct material produced * Standard quantity allowed

= 2,900 * 2.5

=7,250

2 a)

Calculate the labor rate variance

= Actual hours (Actual rate - Standard rate)

=1,000(13.63 - 9)

=1000 * 4.63

=4,630 unfavroable

Working:

Actual rate = Actual direct labor cost / Actual labor hours

=$13,630 / 1,000

=$13.63

Standard rate = Standard direct labor cost / Standard labor hours

=$9,180 / 1,020

=$9

b)

labor efficiency variance = Standard rate (Actual hours worked - standard hours worked)

= 9(1,000 - 1,450)

=9*450

=4,050 favorable

standard hours worked=Standard direct labor cost per cover / Standard direct labor cost per hour * Actual output

=4.5 / 9 * 2,900

= 1,450

3 a)

Variable overhead variance =Actual hours *(Actual rate - Standard rate)

=1,000 (4.64- 2.4)

= 1000*2.24

=2,240 Unfavorable

Actual rate = Actual variable manufacturing overhead / Actual labor hours

=4,640 / 1000

=4.64

Standard rate = Standard variable manufacturing overhead / Standard labor hours

= 2,448 / 1020

=2.4

b) Variable overhead efficiency variance = Standard overhead (Actual hour - standard hours)

= 2.4(1000 - 2,240)

=2.4*1,240

=2,976 favorable

Standard overhead = Variable manufacturing overhead / Standard hours

=2,448 / 1020

= 2.4