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 1,055 hours each month to produce 2,110 sets of covers. The standard costs associated with this level of production are:

	Total	Per Set of Covers
Direct materials	$ 51,273	$24.30
Direct labor	$ 10,550	5.00
Variable manufacturing overhead (based on direct labor-hours)	$ 4,853	2.30
		$31.60

  

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 (6,800 yards)	$ 49,980	$23.80
Direct labor	$ 10,920	5.20
Variable manufacturing overhead	$ 5,460	2.60
		$31.60

At standard, each set of covers should require 3.0 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).

Answer 1

Answer

* All working forms part of the answer

• Workings

Actual DATA for		2100	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	6800	$              7.350	$           49,980.00
Direct labor	1000	$              10.92	$           10,920.00
Variable Overhead	1000	$                5.46	$             5,460.00

Standard DATA for		2100	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 3 yards x 2100 units)=6300 yards	$                   8.10	$       51,030.00
Direct labor	( 0.5 hours x 2100 units)=1050 hours	$                10.00	$       10,500.00
Variable Overhead	( 0.5 hours x 2100 units)=1050 hours	$                   4.60	$         4,830.00

• Requirement 1

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        8.10	-	$                       7.35	)	x	6800
	5100
	Variance		$              5,100.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	6300	-	6800	)	x	$                           8.10
	-4050
	Variance		$              4,050.00			Unfavourable-U

• Requirement 2

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     10.00	-	$                    10.92	)	x	1000
	-920
	Variance		$                  920.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1050	-	1000	)	x	$                        10.00
	500
	Variance		$                  500.00			Favourable-F

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                        4.60	-	$                       5.46	)	x	1000
	-860
	Variance		$                  860.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1050	-	1000	)	x	$                           4.60
	230
	Variance		$                  230.00			Favourable-F