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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are: Per Set Total of Covers $ 45,738 $23.10 $ 6,930 30 3.50 Direct materials Direct labor Variable manufacturing overhead (based on direct laber-hours) $ 3,168 1.60 $28.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month: Direct materials (10,000 yards) Direct labor Variable manufacturing overhad Total $56,000 $ 9,250 $ 4.500 Per Set of Cover $22.40 3.70 1.80 $27.90 At standard, each set of covers should require 3.3 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

1.	Standard price of materials per yard = Standard direct materials per set of covers / Standard quantity of materials per set of covers = 23.10 / 3.3	7
	Actual materials rate per yard = Actual total materials cost / Actual materials quantity = 56000 / 10000	5.6
	Materials price variance = ( Actual price - Standard price ) * Actual quantity = ( 5.6 - 7 ) * 10000	14000	F
	Standard quantity of materials for 2500 sets of covers = 2500 * Standard quantity of materials per set of covers = 2500 * 3.3	8250
	Materials quantity variance = ( Actual quantity - Standard quantity ) * Standard price = ( 10000 - 8250 ) * 7	12250	U
2.
	Standard labor hours per sets of cover = Standard hours for 1980 sets of covers / 1980 = 990 / 1980	0.5
	Standard rate of labor = Standard direct labor per set of cover / Standard labor hours per sets of covers = 3.50 / 0.5	7
	Actual rate of labor = Actual total direct labor cost / Actual direct labor hours worked = 9250 / 1000	9.25
	Labor rate variance = ( Actual rate - Standard rate ) * Actual hours = ( 9.25 - 7 ) * 1000	2250	U
	Standard direct labor hours for 2500 sets of covers = 2500 * Standard labor hours per sets of covers = 2500 * 0.5	1250
	labor efficiency varaince = ( Actual hours - Standard hours ) * Standard rate = ( 1000 - 1250 ) * 7	1750	F
3.
	Standard rate of variable overhead = Standard cost of variable overhead per sets of cover / Standard labor hours per sets of cover = 1.60 / 0.5	3.2
	Actual rate of variable overhead = Actual total variable overhead cost / Actual direct labor hours worked = 4500 / 1000	4.5
	Variable overhead rate variance = ( Actual rate - Standard rate ) * Actual hours = ( 4.5 - 3.2 ) * 1000	1300	U
	Variable overhead efficiency variance = ( Actual hours - Standard hours ) * Standard rate = ( 1000 - 1250 ) * 3.2	800	F