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 980 hours each month to produce 1,960 sets of covers. The standard costs associated with this level of production are: Per Set Total of Covers $ 32, 340 $16.50 $ 6, 860 3.50 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 1,960 1.00 $21.00 During August, the factory worked only 1,000 direct labor-hours and produced 2.100 sets of covers. The following actual costs were recorded during the month: Direct materials (6,000 yards) Direct labor Variable manufacturing overhead Total $ 34.020 $ 7,770 $ 3,990 Per Set of Covers $16.20 3.70 1.90 $21.80 At standard, each set of covers should require 2.5 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 Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Material Price Variance = (Standard Price – Actual Price)*Actual Quantity Purchased

= (16.50/2.5 – Actual Rate)*6,000

= 39,600 – 34,020

= $5,580 Favorable

Material Quantity Variance = (Standard Quantity – Actual Quantity)*Standard Price

= (2,100*2.5 – 6,000)*6.6

= $4,950 Unfavorable

Labor Rate Variance = (Standard Rate – Actual Rate)*Actual Hours

= (7 – Actual Rate)*1000

= $7*1000-7,770

= $770 Unfavorable

Efficiency Variance = (standard hours – actual hours)*Standard Rate

= (2,100*0.5 – 1,000)*7

= $350 favorable

Variable overhead rate variance = (Standard Rate – Actual Rate)*Actual Hours

= (2 – Actual Rate)*1000

= 2,000– 3,990

= $1,990 U

Efficiency Variance = (standard hours – actual hours)*Standard Rate

= (2,100*0.5-1,000)*2

= $100 F