In: Finance
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.
Answer (1):
Material:
Actual price per yard = Actual material cost / Actual usage = 52,780 / 9100 = $5.80
Actual quantity = 9,100 yards
Standard price = 18.50 / 2.5 = $7.40
Standard quantity = 2,900 * 2.5 = 7,250 yards
Material Price Variance = (Actual price - Standard price) x Actual quantity. = (5.80 - 7.40) * 9100 = $14,560 (Favorable)
Material quantity variance = Actual quantity - Standard quantity) x Standard price. = (9100 - 7250 ) * 7.40 = $13,690 (unfavorable)
Hence:
Material Price Variance = $14,560 (Favorable)
Material quantity variance = $13,690 (unfavorable)
Answer (2):
Direct labor:
Actual hours = 1,000
Actual rate = 13,630 / 1000 = $13.63
Standard hour = 2900 / 2 = 1450 hours
Standard rate = 9180 / 1020 = $9
Labor rate variance = (Actual rate - Standard rate) x Actual hours = (13.63 - 9) * 1000 = $4,630 (unfavorable)
Labor efficiency variance = (Actual hours - Standard hours) x Standard rate = (1000 - 1450) * 9 = $4,050 (Favorable)
Hence:
Labor rate variance = $4,630 (unfavorable)
Labor efficiency variance = $4,050 (Favorable)
Answer (2):
Variable overhead (VOH):
Actual VOH = $4,640
Standard variable overhead rate per DLH = 2448/1020 = $2.40
Variable overhead rate variances = Actual VOH - Standard rate * Actual hours = 4640 - 2.40 * 1000 = $2,240 (Unfavorable)
Variable overhead efficiency variances = Standard overhead rate x (Actual hours - Standard hours) =2.40 *(1000 - 1450)
= $1,080 (Favorable)
Hence:
Variable overhead rate variances = $2,240 (Unfavorable)
Variable overhead efficiency variances = $1,080 (Favorable)