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 1,000 hours each month to produce 2,000 sets of covers. The standard costs associated with this level of production are: Total $ 41,400 $ 8,000 Per Set of Covers $20.70 4.00 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,400 1.70 $26.40 During August, the factory worked only 1,050 direct labor-hours and produced 2,400 sets of covers. The following actual costs were recorded during the month: Per Set Direct materials (7,500 yards) Direct labor Variable manufacturing overhead Total $ 48,000 $ 10,080 $ 5,040 $20.00 4.20 2.10 $26.30 At standard, each set of covers should require 3.0 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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

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

= $48000- (7500 yards * $6.9***)

=$48000-$51,750

=$3,750 favorable [ As the actual cost is lesser than standard the variance is favorable]

***per yard standard cost = $20.70/3.0 yard

=$6.9

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

=[7500*$6.9]-[7200¹yards*$6.9]

=$2,070 unfavorable [ as the actual quantity is more than the standard allowed the variance is unfavorable]

¹standard quantity for actual sets of cover = 2400 actual sets*3 yards per set

=7,200yards.

(3) Labor rate variance

Actual hour* actual rate - Actual Hours*standard rate

$10,080 - [1050*$8^**]

=$1680 unfavorable [ the actual rate is higher than standard rate the variance is unfavorable]

^**standard rate = $8000/1000hours

=$8

(4)

labor efficiency variance

Actual hour * standard rate - standard hour*standard rate

= (1050*$8)-(1200*$8)

=$1,200 favorable

standard hours per unit = 1000hours/ 2000sets

=0.5 hour

standard hour allowed for actual production = 2400*0.5 = 1200hours

(5) variable overhead rate variance

Actual hour* actual rate - Actual hour*standard rate

=$5,040 - (1050*$3.4)

=$5,040-$3,570

=$1,470 unfavorable [ as the actual is higher than standard the variance is unfavorable]

standard rate per hour = $3400/1000

=$3.4

(6) efficiency variance

Actual hours*standard rate - standard hour*standard rate

=(1050*$3.4) - (1200*$3.4)

=$510 favorable [ as the actual hours used are lesser than standard allowed the variance is favorable]

standard hour = 1000/2000 =0.5hour per unit

=2400*0.5

=1200