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 1,040 hours each month to produce 2,080 sets of covers. The standard costs associated with this level of production are as follows: Total $ 40,560 $ 7,280 Per Set of Covers $19.50 3.50 Direct materials Direct labour Variable manufacturing overhead (based on direct labour-hours) $ 4,160 2.00 $ 25.00 During August, the factory worked only 600 direct labour-hours and produced 1,800 sets of covers. The following actual costs were recorded during the month: Direct materials (5,000 yards) Direct labour Variable manufacturing overhead Total $ 34,200 $ 6,660 $ 4,140 Per Set of Covers $19.00 3.70 2.30 $25.00 At standard, each set of covers should require 2.50 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).) Materials price variance Materials quantity variance

Answer 1

Actual price per pound = $34,200/5,000 = $6.84 Standard price per pound = $19.5/2.5 = $7.8 Direct materials price variance = (Actual price-Standard price) * Actual quanity Direct materials price variance = ($6.84 - $7.8)*5,000 Direct materials price variance = $4,800 Favorable Standard quantity allowed = 1,800*2.5 = 4,500 Direct materials quantity variance = (Actual quanity-Standard quantity)*Standard price Direct materials quantity variance = (5,000-4,500)*$7.8 Direct materials quantity variance = $3,900 Unfavorable

Actual rate per hour = $6,660/600 = $11.1 per hour Standard rate per hour = $7,280/1,040 = $7 per hour Direct labor rate variance = (Actual rate-Standard rate)*Actual hours Direct labor rate variance = ($11.1-$7)*600 Direct labor rate variance = $2,460 Unfavorable Standard hours allowed = 1,040/2,080*1,800 = 900 hours Direct labor efficiency variance = (Actual hours-Standard hours)"Standard rate Direct labor efficiency variance = (600-900) *$7 Direct labor efficiency variance = $2,100 Favorable

Actual rate per hour = $4,140/600 = $6.9 Standard rate per hour = $4,160/1,040 = $4 Variable overhead rate variance = (Actual rate-Standard rate)*Actual hours Variable overhead rate variance = ($6.9-$4)*600 Variable overhead rate variance = $1,740 Unfavorable Standard hours allowed = 1,040/2,080*1,800 = 900 hours Variable overhead efficiency variance = (Actual hours-Standard hours) *Standard rate Variable overhead efficiency variance = (600-900) *$4 Variable overhead efficiency variance = $1,200 Favorable