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:

Direct Material Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AQ *	AP =				AQ *	SP =				SQ *	SP =
9100	$5.80	$52,780.00			9100	$7.40	$67,340.00			7250	$7.40	$53,650.00
			$14,560.00	F				$13,690.00	U
			Direct Material Price Variance					Direct Material Qty variance
Direct material price variance					$14,560.00	F
Direct material quantity variance					$13,690.00	U

Solution 2:

Direct Labor Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
1000	$13.63	$13,630.00			1000	$9.00	$9,000.00			1450	$9.00	$13,050.00
			$4,630.00	U				$4,050.00	F
			Direct Labor rate Variance					Direct Labor Efficiency Variance
Direct Labor Rate variance					$4,630.00	U
Direct Labor Efficiency variance					$4,050.00	F

Solution 3:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
1000	$4.64	$4,640.00			1000	$2.40	$2,400.00			1450	$2.40	$3,480.00
			$2,240.00	U				$1,080.00	F
			Variable overhead rate variance					Variable overhead efficiency variance
Variable overhead rate variance					$2,240.00	U
Variable overhead efficiency variance					$1,080.00	F