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 1,010 hours each month to produce 2,020 sets of covers. The standard costs associated with this level of production are: Total $ 36,360 $ 7,070 Per Set of Covers $18.00 3.50 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,030 1.50 $23.00 During August, the factory worked only 1,080 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month: Direct materials (8,100 yards) Direct labor Variable manufacturing overhead Total $ 46,980 $ 9,990 $ 4,590 Per Set of Covers $17.40 3.70 1.70 $22.80 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.

Answer 1

1) Material Variances

Material Price Variance                                 =	Actual Quantity of direct material used( Standard Price per yard - Actual Price per yard)
=	8100 (9 - 5.80)
=	25,920 F
Standard Quantity of material required to produce each set of cover = 2 Yards
Standard Cost of material per set of cover   = 18 given in question
Standard Price of 1 yard                                            18/2   =   $9
Actual Price per yard = Actual cost / Actual quantity used
= 46,980/8100
= 5.80
Material Quantity Variance                            = standard price per unit ( Actual quantity - standard quantity)
=   9          (8100 -5400)
=   24,300 U
Standard quantity required to produce Actual output = Actual Output * Standard quantity required to produce each unit
= 2700 *2
= 5400

2). Labor Variances

Labor rate variance   =    Actual Hours worked ( Actual rate - standard rate)
=     1,080         ( 9.25 - 7)
=    2,430 U
Actual rate per hour =( Actual cost/ Actual hours worked)
= (9,990 /1,080)
=9.25
Standard rate per hour =( Standard Labor cost/ Standard hours)
= 7,070/1,010
=7

Labor efficiency variance = standard rate ( Actual Hours - Standard Hours)
= 7      (1,080 - 1,350)
= -1890 F
Standard hours required to produce 2,700 set of covers    = (1,010 /2,020 ) * 2,700
	= 1,350

3) Variable overhead variances

Variable overhead rate variance = Actual overhead - ( Actual Hours * Standard variable overhead rate per hour)
= 4,590 - (1,080 * 3)
= 1,350 U
Standard variable overhead rate per hour = (standard variable overhead / standard hours)
= 3,030 /1,010
= 3

Variable overhead Efficiency variance = standard overhead rate ( Actual hours - standard hours required to produced actual units )
= 3   ( 1,080- 1,350)
= 810 F

Standard hours required to produce 2,700 set of covers    = (1,010 /2,020 ) * 2,700
	= 1,350