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 1,005 hours each month to produce 2,010 sets of covers.

The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 28,542 $ 14.20 Direct labor $ 8,040 4.00 Variable manufacturing overhead (based on direct labor-hours) $ 3,618 1.80 $ 20.00 During August, the factory worked only 1,200 direct labor-hours and produced 2,600 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (6,000 yards) $ 35,100 $ 13.50 Direct labor $ 10,920 4.20 Variable manufacturing overhead $ 5,460 2.10 $ 19.80 At standard, each set of covers should require 2.0 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. (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

Material variance:
Std Qty per unit of output: 2.0 yards
Std price per yard (14.20/2): $ 7.10 per yard
Actual output: 2600 units
Std Qty allowed (2600*2): 5200 yards
Actual Qty used: 6000 yardds
Actual price per yard: 35100/6000 = $ 5.85 per yard
Material Price Variance = Actual Qty (Std pricec-Actual pricec)
		6000 ( 7.10 -5.85 )= $7500 F
Material Quantity variance: Std price (Std qty -Actual Qty)
		7.10 (5200 -6000) = $ 5680 U
Labour Variance:
Std hour per unit: 0.5 hour per unit
Std hours allowed (2600*.50)= 1300 hours
Actual hours allowed: 1200 hours
Std rate pr hour (4/0.5)= $8 per hour
Actual rate (10920/1200)= $ 9.10 per hour
Labour rate variance: Actual hours (Std rate-Actual rate)
	1200 hours (8.00-9.10) = $ 1320 U
Labour Efficiency variance: Sstd rarte (Std hours-Actual hours)
		8.00 ( 1300-1200)= 800 F
Vvariable OH variance:
Std OH rate per hour: (1.80/0.50)= $ 3.60 per hour
Actual OH rate per hour (5460/1200)= $ 4.55 per hour
Variable rate variance = Actual Hours (Std OH rate-Actual OH rate)
		1200 (3.60 -4.55) = $ 1140 U
Vvariable Efficiency Variance: Std OH rate (Std Hours-Actual Hours)
		3.60 ( 1300-1200 ) = 360 F