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 995 hours each month to produce 1,990 sets of covers. The standard costs associated with this level of production are:

Total Per Set of Covers Direct materials $ 47,362 $ 23.80 Direct labor $ 8,955 4.50

Variable manufacturing overhead (based on direct labor-hours) $ 2,388 1.20 $ 29.50

During August, the factory worked only 1,000 direct labor-hours and produced 2,300 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (8,800 yards) $ 50,600 $ 22.00 Direct labor $ 10,580 4.60 Variable manufacturing overhead $ 4,600 2.00 $ 28.60 At standard, each set of covers should require 3.5 yards of material. All of the materials purchased during the month were used in production.

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 995 hours each month to produce 1,990 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	47,362	$	23.80
Direct labor	$	8,955		4.50
Variable manufacturing overhead (based on direct labor-hours)	$	2,388		1.20
			$	29.50

During August, the factory worked only 1,000 direct labor-hours and produced 2,300 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (8,800 yards)	$	50,600	$	22.00
Direct labor	$	10,580		4.60
Variable manufacturing overhead	$	4,600		2.00
			$	28.60

At standard, each set of covers should require 3.5 yards of material. All of the materials purchased during the month were used in production.

1. What is the materials price variance and materials quantity variance

2. What is the labor rate variance and labor efficiency variance.

3. Find Variable overhead rate variance and Var. OH efficiency variance.

Answer 1

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

= $50,600- (8800yards * $6.8***)

=$50,600-$59,840

=$9,240 favorable [ As the actual cost is lesser than standard the variance is favorable]

***per yard standard cost = $23.80/3.5 yard

=$6.8

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

=[8800*$6.8]-[8050¹yards*$6.8]

=$5,100unfavorable [ as the actual quantity is more than the standard allowed the variance is unfavorable]

¹standard quantity for actual sets of cover = 2300 actual sets*3.5yards per set

=8050 yards.

(3) Labor rate variance

Actual hour* actual rate - Actual Hours*standard rate

$10,580 - [1000*$9^**]

=$1,580 unfavorable [ the actual rate is higher than standard rate the variance is unfavorable]

^**standard rate = $8955/995 hours

=$9

(4)

labor efficiency variance

Actual hour * standard rate - standard hour*standard rate

= (1000*$9)-(1150*$9)

=$1,350 favorable

standard hours per unit = 995hours/ 1990sets

=0.5 hour

standard hour allowed for actual production = 2300*0.5 = 1150hours

(5) variable overhead rate variance

Actual hour* actual rate - Actual hour*standard rate

=$4600 - (1000*$2.4)

=$4600-$2400

=$2,200 unfavorable [ as the actual is higher than standard the variance is unfavorable]

standard rate per hour = $2388/995

=$2.4

(6) efficiency variance

Actual hours*standard rate - standard hour*standard rate

=(1000*$2.4) - (1150*$2.4)

=$360 favorable [ as the actual hours used are lesser than standard allowed the variance is favorable]