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Problem 10-9 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Marvel Parts, Inc., manufactures auto accessories. One of...

Problem 10-9 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3]

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 1,010 hours each month to produce 2,020 sets of covers. The standard costs associated with this level of production are:

Total Per Set
of Covers
Direct materials $ 36,360 $ 18.00
Direct labor $ 7,070 3.50
Variable manufacturing overhead (based on direct labor-hours) $ 3,030 1.50
$ 23.00

During August, the factory worked only 1,080 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month:

Total Per Set
of Covers
Direct materials (8,100 yards) $ 46,980 $ 17.40
Direct labor $ 9,990 3.70
Variable manufacturing overhead $ 4,590 1.70
$ 22.80

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.)

Solutions

Expert Solution

  • Workings

Actual DATA for

2700

units

Quantity (AQ)

Rate (AR)

Actual Cost

Direct Material

8100

$                   5.80

$           46,980.00

Direct labor

1080

$                   9.25

$             9,990.00

Variable Overhead

1080

$                   4.25

$             4,590.00

Standard DATA for

2700

units

Quantity (SQ)

Rate (SR)

Standard Cost

[A]

[B]

[A x B]

Direct Material

( 2 yards x 2700 units)=5400 yards

$                   9.00

$       48,600.00

Direct labor

( 0.5 hours x 2700 units)=1350 hours

$                   7.00

$         9,450.00

Variable Overhead

( 0.5 hours x 2700 units)=1350 hours

$                   3.00

$         4,050.00

  • Requirements 1, 2 and 3

Material Price Variance

$                                                  25,920.00

Favourable-F

Material Quantity Variance

$                                                  24,300.00

Unfavourable-U

Labor Rate Variance

$                                                     2,430.00

Unfavourable-U

Labour Efficiency Variance

$                                                     1,890.00

Favourable-F

Variable Overhead Rate Variance

$                                                     1,350.00

Unfavourable-U

Variable Overhead Efficiency Variance

$                                                        810.00

Favourable-F

  • Calculations

Material Price Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Quantity

(

$                                9.00

-

$                       5.80

)

x

8100

25920

Variance

$            25,920.00

Favourable-F

Material Quantity Variance

(

Standard Quantity

-

Actual Quantity

)

x

Standard Rate

(

5400

-

8100

)

x

$                           9.00

-24300

Variance

$            24,300.00

Unfavourable-U

Labor Rate Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Labor Hours

(

$                                7.00

-

$                       9.25

)

x

1080

-2430

Variance

$              2,430.00

Unfavourable-U

Labour Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

1350

-

1080

)

x

$                           7.00

1890

Variance

$              1,890.00

Favourable-F

Variable Overhead Rate Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Labor Hours

(

$                                3.00

-

$                       4.25

)

x

1080

-1350

Variance

$              1,350.00

Unfavourable-U

Variable Overhead Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

1350

-

1080

)

x

$                           3.00

810

Variance

$                  810.00

Favourable-F


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