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 1,005 hours each month to produce 2,010 sets of covers. The standard costs associated with this level of production are: Total $ 28,542 $ 8,040 Per Set of Covers $14.20 4.00 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,618 1.80 $20.00 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 (6,000 yards) Direct labor Variable manufacturing overhead Per Set Total of Covers $ 35,100 $13.50 $ 10,920 4.20 $ 5,460 2.10 $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.

Answer 1

(1) Material Price Variance = (SR - AR) * AQ

SR = $14.20/2 = $7.10 per yard

AR = $35100/6000 = $5.85 per yard

($7.10 - $5.85) * 6000 = $7500 Favorable

Material Quantity Variance = (SQ - AQ) * SR

SQ = 2 yard * 2600 = 5200 yard

(5200 - 6000) * $7.10 = $5680 Unfavorable

(2) Labor rate Variance = (SR - AR) * A Hrs

S Hrs per Cover = 1005/2010 = 0.5 hours

SR = $4/0.5 = $8

AR = $10920/1200 = $9.1

($8 - $9.1) * 1200 hours = $1320 Unfavorable

Labor Efficiency Variance = (S Hrs - A Hrs) * SR

S Hrs = 0.5 * 2600 = 1300 hours

A Hrs = 1200 hours

(1300 - 1200) * $8 = $800 Favorable

(3)Variable OH Rate Variance = (SR - AR) * A Hrs

SR = $1.80/0.5 = $3.60

AR = $5460/1200 = $4.55

($3.6 - $4.55) * 1200 hours = $1140 Unfavorable

Variable OH Efficiency Variance = (S Hrs - A Hrs) * SR

S Hrs = 0.5 * 2600 = 1300 hours

A Hrs = 1200 hours

(1300 - 1200) * $3.60 = $360 Favorable