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 980 hours each month to produce 1,960 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 32,340 $ 16.50 Direct labor $ 6,860 3.50 Variable manufacturing overhead (based on direct labor-hours) $ 1,960 1.00 $ 21.00 During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (6,000 yards) $ 34,020 $ 16.20 Direct labor $ 7,770 3.70 Variable manufacturing overhead $ 3,990 1.90 $ 21.80 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

1. Material Price Variance and Material Quantity Variance

Actual Quantity of Input at Actual Price ( AQ * AP)	Actual Quantity of input Standard Price ( AQ * SP)	Standard Quantity for Output allowed at Standard Price (SQ * SP)
$ 34,020	6000 yards * $ 6.60 per yard = $ 39,600	5,250 yards * $ 6.60 per yard = $ 34,650

Material Price Variance = $ 34,020 - $ 39,600 = $ 5,580 F

Material Quantity Variance = $39,600 - $ 34,650 = $ 4,950 U

Material Spending Variance = $ 5,580 - $4,950 = $630 F

Calculations ;

# $ 16.50 / 2.50 yards = $ 6.60 per yard

## 2,100 sets * 2.50 yards per set = 5,250 yards

Alternatively the variance can be computed using the formula

Material Price Variance =AQ (AP - SP)

6,000 yards ($ 5.67 per yard -$ 6.60 per yard) = $ 5,580 F

# $ 34,020 / 6,000 yards = $ 5.67 per yard

Materials Quantity Variance = SP ( AQ - SQ)

$ 6.60 per yard (6,000 yards - 5,250 yards) = $ 4,950 U

2. Calculation of Labour Rate Efficency Variance for August

Actual Hours of Input at the Actual Rate ( AH * AR)	Actual Hours of Input at the Standard Rate ( AH * SR)	Standard Hours Allowed for Output at the standard rate ( SH * SR)
$ 7,770	1000 hours * $ 7 per hour = $ 7,000	1,050 hours * $ 7 per hour = $ 7,350

Labour Rate Variance = $ 7,770 - $ 7,000 = $ 770 U

Labour Efficiency Variance = $ 7,000 - $ 7,350 = $ 350 F

LabourSpending Variance = $ 770 - $ 350 = $ 420 U

# 980 Standard Hours / 1,960 sets = .5 standard hour per set , $ 3.50 standard per set = $ 7 standard rate per hour .

## 2100 set * 0.5 standard hour's per set = 1050 standard hours

Alternatively ;

Labour Rate Variance = AH ( AR - SR )

1000 hours ( $ 7.77 per hour - $7 per hour) = $ 770 U

# $ 7,770 / 1000 hours = $ 7.77 per hour

Labour efficiency variance = SR ( AH - SH )

$ 7 per hour ( 1000 hour - 1050 hours) = $ 350 F

3. Calculation of Variable Overheads Rate Variance and Efficiency Variance ;

Actual Hours of Input at the Actual Rate ( AH * AR)	Actual Hours of Input at the Standard Rate ( AH * SR)	Standard Hours Allowed for output at the standard rate ( SH * SR)
$ 3,990	1000 Hours * $ 2 per hour's = $ 2 ,000	1050 hours * $ 2 per hour = $ 2,100

Variable Overhead Rate Variance = $ 3,990 - $ 2,000 = $ 1,990 U

Variables Overhead Efficiency Variance = $ 2000 - $ 2,100 = $ 100 F

Spending Variance = $ 1,990 - $ 100 = $ 1,890 U

Calculation

# $ 1 standard cost per set / .50 standard hours per set = $ 2 Standard rate per hour .

Alternatively;

Variable Overhead Rate Variance = AH ( AR - SR)

1000 hours ( $ 3.99 per hour - $ 2 per hour ) = $ 1,990 U

# $ 3,990 / 1000 hours = $ 3.99 per hour

Variance overhead efficiency variance = SR ( AH - SH)

$ 2 per hour ( 1000 hour - 1050 hours ) = $ 100 F