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 1.030 hours each month to produce 2,060 sets of covers. The standard costs associated with this level of production are: Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) Total $ 39,140 $ 9,270 Per Set of Covers $19.00 4.50 $ 3.502 1.70 $25.20 During August, the factory worked only 640 direct labor-hours and produced 1,600 sets of covers. The following actual costs were recorded during the month: or Cove Direct materials (5,500 yards) Direct labor Variable manufacturing overhead Total $ 29,920 $ 7,520 $ 4.000 Per Set of Covers $18.70 4.70 2.50 $25.90 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. 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... zero Prey 1 of 6 Next >

Answer 1

Particulars	Amount	Favorabl /Unfavourable
1. Material Price Variance	$ 11,880	F
Material Quantity Variance	$ 11,400	F
2. Labour Rate Variance	$ 1,760	U
Labour Efficiency Variance	$ 1,440	F
3. Variable Overhead Rate Variance	$ 1,824	U
Variable Overhead Efficiency Variance	$ 544	F

Calculation;

	Actual Qty. * Actual Price / Rate	Actual Qty * Standard Price / Rate	Standard Qty *Standard Price / Rate
Direct Materials	$ 29,920	$ 41,800 (5,500 * $19 / 2.50 yards per unit = $ 7.6 per hour)	$ 30,400 ( 1,600 * $ 19)
Direct Labour	$ 7,520	$ 5760 (640 *$ 4.50 (1,030/2,060 = .50)=$ 9 per hour )	$ 7,200 ( 1,600 * 4.50)
Variable Overhead	$ 4,000	$ 2,176 (640 * $1.70 / .50 per hour)	$ 2,720 ( $ 1,600 * 1.70)

Material Variance

	Formula	Variance
Total Material Variance	(AQ * AP) - ( SQ * SP)	$ 29,920 - $ 30,400 = $ 480 F
Material Price Variance	(AQ * AP) - (AQ * SP)	$ 29,920 - $ 41,800 = $ 11,880 F
Material Quantity Variance	(AQ * SP) - (SQ * SP)	$ 41,800 - $ 30,400 =$ 11,400 U

Labour Variance

	Formula	Variance
Total Labour Variance	(AH * AR) - ( SH * SR)	$ 7,520 - $ 7,200 = $ 320 U
Labour Rate Variance	( AH * AR) - ( AH * SR)	$ 7,520 - $ 5,760 = $ 1,760 U
Labour Efficiency Variance	( AH * SR ) - ( SH* SR)	$ 5,760 - $ 7,200 = $ 1,440 F

Variable Overhead Variance

	Formula	Variance
Total Variable Overhead Variance	(AH * AR) - (SH * SR)	$4,000 - $ 2,720 = $ 1,280 U
Variable Overhead Rate Variance	(AH * AR) - (AH * SR)	$ 4,000 - $ 2,176 = $ 1,824 U
Variable Overhead Efficiency Variance	(AH * SR ) - ( SH * SR)	$ 2,176 - $ 2,720 = $ 544 F