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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are: Per Set of Total Covers $45,738 $23.10 $ 6,930 3.50 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,168 1.60 $28.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month: Direct materials (10,000 yards) Direct labor Variable manufacturing overhead Per Set Total of Covers $56,000 $22.40 $ 9,250 3.70 $ 4,500 1.80 $27.90 At standard, each set of covers should require 3.3 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

Answer 1

1. Materials price variance = (Standard price - actual price) x Material purchased
= {($23.10 / 3.3) - ($56000 / 10,000)} x 10,000 = $14,000 Favorable

Materials quantity variance = (Standard quantity - actual quantity used) x standard price
= {(2,500 x 3.3) - 10,000} x $23.10/3.30 = $12,250 Unfavorable

2. Labor rate variance = (Standard rate - actual rate) x Actual hours used
= {($6930/990) - ($9250 / 1000) x 1000 = $2,250 Unfavorable

Labor efficiency variance = (Standard hours - actual hours) x Standard rate
= {(990 / 1,980 X 2,500) - 1000} x $6930/990 = $1,750 Favorable

3. Variable overhead rate variance = (Standard rate - actual rate) x Actual hours used
= {($3168/990) - ($4,500 / 1000) x 1000 = $1,300 Unfavorable

Variable overhead efficiency variance = (Standard hours - actual hours) x Standard rate
= {(990 / 1,980 X 2,500) - 1000} x $3168/990 = $8,000 Favorable