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 1,040 hours each month to produce 2,080 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	40,560	$	19.50
Direct labor	$	7,280		3.50
Variable manufacturing overhead (based on direct labor-hours)	$	4,160		2.00
			$	25.00

During August, the factory worked only 600 direct labor-hours and produced 1,800 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (5,000 yards)	$	34,200	$	19.00
Direct labor	$	6,660		3.70
Variable manufacturing overhead	$	4,140		2.30
			$	25.00

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

• All working forms part of the answer

• Working

Actual DATA for 1800 units

Quantity (AQ) Rate (AR) Actual Cost

Direct Material 5000 $ 6.84 [34200/5000] $ 34,200.00

Direct labor 600 $ 11.10 [6660/600] $ 6,660.00

Variable Overhead 600 $ 6.90 [4140/600] $ 4,140.00

Standard DATA for 1800 units

Quantity (SQ) Rate (SR) Standard Cost

[A] [B] [A x B]

Direct Material ( 2.5 yards x 1800 units)=4500 yards $ 7.80 $ 35,100.00

Direct labor ( 0.5 hours x 1800 units)=900 hours $ 7.00 $ 6,300.00

Variable Overhead ( 0.5 hours x 1800 units)=900 hours $ 4.00 $ 3,600.00

• Requirement 1

Material Price Variance

( Standard Rate - Actual Rate ) x Actual Quantity

( $ 7.80 - $ 6.84 ) x 5000

4800

Variance $ 4,800.00 Favourable-F

Material Quantity Variance

( Standard Quantity - Actual Quantity ) x Standard Rate

( 4500 - 5000 ) x $ 7.80

-3900

Variance $ 3,900.00 Unfavourable-U

• Requirement 2

Labor Rate Variance

( Standard Rate - Actual Rate ) x Actual Labor Hours

( $ 7.00 - $ 11.10 ) x 600

-2460

Variance $ 2,460.00 Unfavourable-U

Labour Efficiency Variance

( Standard Hours - Actual Hours ) x Standard Rate

( 900 - 600 ) x $ 7.00

2100

Variance $ 2,100.00 Favourable-F

• Requirement 3

Variable Overhead Rate Variance

( Standard Rate - Actual Rate ) x Actual Labor Hours

( $ 4.00 - $ 6.90 ) x 600

-1740

Variance $ 1,740.00 Unfavourable-U

Variable Overhead Efficiency Variance

( Standard Hours - Actual Hours ) x Standard Rate

( 900 - 600 ) x $ 4.00

1200

Variance $ 1,200.00 Favourable-F