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		Per Set of Covers
Direct materials	$	41,400	$	20.70
Direct labor	$	8,000		4.00
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:

	Total		Per Set of Covers
Direct materials (7,500 yards)	$	48,000	$	20.00
Direct labor	$	10,080		4.20
Variable manufacturing overhead	$	5,040		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.)

1. Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance 3. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

1.
Calculation of material price variance
Material price variance	(Actual rate - Standard rate)*Actual quantity used
Material price variance	(6.40-6.90)*7500
Material price variance	$3,750	F
Actual rate	(48000/7500)	$6.40
Standard rate	41400/(2000*3)	$6.90
Calculation of material quantity variance
Material quantity variance	(Actual quantity - Standard quantity)*Standard rate
Material quantity variance	(7500-(3*2400))*6.90
Material quantity variance	(7500-7200)*6.90
Material quantity variance	$2,070	U
2.
Calculation of labor rate variance
Labor rate variance	(Actual rate - Standard rate)*Actual hours used
Labor rate variance	(9.60-8)*1050
Labor rate variance	$1,680	U
Actual rate	10080/1050	9.60
Standard rate	8000/1000	8.00
Calculation of labor efficiency variance
Labor efficiency variance	(Actual hours - Standard hours)*Standard rate
Labor efficiency variance	(1050-(0.50*2400))*$8
Labor efficiency variance	(1050-1200)*8
Labor efficiency variance	$1,200	F
3.
Calculation of variable overhead rate variance
Variable overhead rate variance	(Actual rate - Standard rate)*Actual hours used
Variable overhead rate variance	(4.80-3.40)*1050
Variable overhead rate variance	$1,470	U
Actual rate	5040/1050	4.80
Standard rate	3400/1000	3.40
Calculation of variable overhead efficiency variance
Variable overhead efficiency variance	(Actual hours - Standard hours)*Standard rate
Variable overhead efficiency variance	(1050-1200)*3.40
Variable overhead efficiency variance	$510	F
When actual rate is higher than budgeted then rate variance is unfavorable and when actual rate is lower than budgeted then rate variance is favorable.
When actual quantity used is higher than budgeted then efficiency variance is unfavorable and when actual quantity used is lower than budgeted then variance is favorable.