Question

Problem 10-9 Comprehensive Variance 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 1,020 hours each month to produce 2,040 sets of covers. The standard costs associated with this level of production are: Per Set of Covers $18.50 4.50 Total $ 37,740 $ 9,180 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 2,448 1.20 $24.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,900 sets of covers. The following actual costs were recorded during the month: Direct materials (9, 100 yards) Direct labor Variable manufacturing overhead Total $ 52,780 $ 13,630 $ 4,640 Per Set of Covers $18.20 4.70 1.60 $24.50 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.

Answer 1

(1) material price variance = Actual quantity* actual price-Actual quantity * standard price

= $52,780- (9100 yards * $7.4***)

=$52,780-$67,340

=$14,560 favorable [ As the actual cost is lesser than standard the variance is favorable]

***per yard standard cost = $18.50/2.5 yard

=$7.4

(2) Material Quantity variance = Actual quantity * standard price - standard quantity* standard price

=[9100*$7.4]-[7250¹yards*$7.4]

=$13,690unfavorable [ as the actual quantity is more than the standard allowed the variance is unfavorable]

¹standard quantity for actual sets of cover = 2900 actual sets*2.5yards per set

=7,250yards.

(3) Labor rate variance

Actual hour* actual rate - Actual Hours*standard rate

$13,630 - [1000*$9^**]

=$4,630 unfavorable [ the actual rate is higher than standard rate the variance is unfavorable]

^**standard rate = $9180/1020hours

=$9

(4)

labor efficiency variance

Actual hour * standard rate - standard hour*standard rate

= (1000*$9)-(1450*$9)

=$4050 favorable

standard hours per unit = 1020hours/ 2040sets

=0.5 hour

standard hour allowed for actual production = 2900*0.5 = 1450hours

(5) variable overhead rate variance

Actual hour* actual rate - Actual hour*standard rate

=$4640 - (1000*$2.4)

=$4640-$2400

=$2,240 unfavorable [ as the actual is higher than standard the variance is unfavorable]

standard rate per hour = $2448/1020

=$2.4

(6) efficiency variance

Actual hours*standard rate - standard hour*standard rate

=(1000*$2.4) - (1450*$2.4)

=$1080 favorable [ as the actual hours used are lesser than standard allowed the variance is favorable]