Question

Problem 10-9 (Algo) Comprehensive Variance Analysis (LO10-1, LO10-2, LO10-3) 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 995 hours each month to produce 1,990 sets of covers. The standard costs associated with this level of production are: Per Set of Total Covers $47,362 $23.80 $ 8,955 4.50 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 2,388 1.20 $29.50 During August, the factory worked only 1000 direct labor-hours and produced 2,300 sets of covers. The following actual costs were recorded during the month: Direct materials (8,800 yards) Direct labor Variable manufacturing overhead Per Set Total of Covers $50,600 $22.00 $10,580 4.60 $4,600 2.00 $28.60 At standard, each set of covers should require 3.5 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

Answer 1

(1)

(A)

Material price variance = actual quantity purchased x (standard price - actual price)

= 8800 x ($23.80 - $22)

= $15840 Favorable

(B)

Material quantity variance = standard price x (standard quantity - actual quantity used)

= $23.80 x (8050 - 8800)

= $17850 Unfavorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 2300 x 3.5 = 8050 yards

(2)

(A)

Labor rate variance = actual hours x (standard rate - actual rate)

= 1000 x ($4.50 - $4.60)

= $100 Unfavorable

(B)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $4.50 x (1150 - 1000)

= $675 Favorable

Where,

Standard hours = actual output x standard hours per unit of output

= 2300 x (995/1990) = 1150 hours