Question

Problem 10-9 Comprehensive Varlance Analysis [LO10-1, LO10-2, LO10-3] 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 1,005 hours each month to produce 2.010 sets of covers. The standard costs associated with this level of production are: Total $ 28,542 $ 8,840 Per Set of Covers $14.20 4.80 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,618 1.80 $20.ee During August, the factory worked only 1.200 direct labor-hours and produced 2.600 sets of covers. The following actual costs were recorded during the month: Direct materials (6,880 yards) Direct labor Variable manufacturing overhead Total $ 35,100 $19.920 $ 5.468 Per Set of Covers $13.50 4.20 2.18 $19.80 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 varlance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (I.e., zero varlance). Input all amounts as positive values.) 1. Materials price variance Materials quantity variance 2. Labor rate variance Labor efficiency variance 3. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

(1)

(A)

Material price variance = actual quantity purchased x (standard price - actual price)

= 6000 x ($7.10 - $5.85)

= $7500 favorable

where,

Standard price = $28542/(2010 x 2) = $7.10

actual price = $35100/6000 = $5.85

(B)

Material quantity variance = standard price x (standard quantity - actual quantity used)

= $7.10 x (5200 - 6000)

= $5680 Unfavorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 2600 x 2 = 5200 yards

(2)

(A)

Labor rate variance = actual hours x (standard rate - actual rate)

= 1200 x ($8 - $9.10)

= $1320 Unfavorable

where,

Standard rate = $8040/1005 = $8

actual rate = 10920$/1200 = $9.10

(B)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $8 x (1300 - 1200)

= $800 Favorable

Where,

Standard hours = actual output x standard hours per unit of output

= 2600 x ($1005/2010) = 1300 hour