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 1,065 hours each month to produce 2,130 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	35,358	$	16.60
Direct labor	$	8,520		4.00
Variable manufacturing overhead (based on direct labor-hours)	$	3,195		1.50
			$	22.10

During August, the factory worked only 1,050 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 (6,000 yards)	$	43,740	$	16.20
Direct labor	$	11,340		4.20
Variable manufacturing overhead	$	5,670		2.10
			$	22.50

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.)

Answer 1

Answer to Requirement 1.

Materials Price Variance = Actual Cost – (Standard Price * Actual Quantity)
Actual Cost = $43,740
Standard Price = $16.60 / 2.0 = $8.30 per yard
Actual Quantity = 6,000 yards

Materials Price Variance = $43,740 – ($8.30 * 6,000)
Materials Price Variance = 6,060 (Favourable)

Materials Quantity Variance = (Standard Quantity – Actual Quantity) * Standard Price
Standard Quantity = 2,700 * 2.00 = 5,400 yards
Materials Quantity Variance = (5,400 – 6,000) * $8.30
Materials Quantity Variance = 4,980 (Unfavourable)

Answer to Requirement 2.

Standard Hours per set = 1,065 / 2,130 = 0.50 hours per set
Standard rate per hour = $4.00 / 0.50 = $8 per Hour

Labor Rate Variance = (Standard rate * Actual Hours) – Actual Cost
Labor Rate Variance = ($8.00 * 1,050) - $11,340
Labor Rate Variance = 2,940 (Unfavourable)

Labor Efficiency Variance = (Standard Hours – Actual Hours) * Standard Rate
Standard Hours = 2,700 Sets * 0.50 = 1,350 Hours
Labor Efficiency Variance = (1,350 – 1,050) * $8.00
Labor Efficiency Variance = 2,400 (Favourable)

Answer to Requirement 3.

Standard Rate = $1.50 / 0.50 = $3.00 per Hour

Variable Overhead Rate Variance = (Standard Rate * Actual Hours) – Actual Cost
Variable Overhead Rate Variance = ($3.00 * 1,050) - $5,670
Variable Overhead Rate Variance = 2,520 (Unfavourable)

Variable Overhead Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate
Variable Overhead Efficiency Variance = (1,350 – 1,050) * $3.00
Variable Overhead Efficiency Variance = 900 (Favourable)