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 1,035 hours each month to produce 2,070 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	31,878	$	15.40
Direct labor	$	6,210		3.00
Variable manufacturing overhead (based on direct labor-hours)	$	4,347		2.10
			$	20.50

During August, the factory worked only 500 direct labor-hours and produced 1,700 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (5,000 yards)	$	25,500	$	15.00
Direct labor	$	5,440		3.20
Variable manufacturing overhead	$	4,080		2.40
			$	20.60

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.

Answer 1

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($7.70 - $5.10) × 5000 = $13000 F

Standard Price per Yard = 15.40/2= $7.70

Actual Price pe yard= $25500/5000=5.10

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

((2 yard X 1700 Set)-5000 Yard )X $7.70 = $12320 U F

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($6/hour - $10.88/hour) × 500 Hours= $2440 UF

Standard Rate   per Hour = 6210/ 1035 Hour=$6 per Hour

Actual Price pe yard= $5440/500=10.88

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard Rate

= (0.5Hour × 1700 Unit - 500) × $6 = $2100 F

Std Qty per Unit= 1035/2070=0.5 Hour

Calculation of Variable OH rate variance

= (Standard Variable OH per hour - actual variable OH per hour) × Actual hours used

= ($4.20/hour - $8.16/hour) × 500 Hours= $1980 U F

* Actual Cost /Hour= $4080/500=$8.16/Hour

Std Cost / Hour=4347/1035 Hour=4.20