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 995 hours each month to produce 1,990 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	47,362	$	23.80
Direct labor	$	8,955		4.50
Variable manufacturing overhead (based on direct labor-hours)	$	2,388		1.20
			$	29.50

During August, the factory worked only 1,000 direct labor-hours and produced 2,300 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (8,800 yards)	$	50,600	$	22.00
Direct labor	$	10,580		4.60
Variable manufacturing overhead	$	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.

(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.)

Answer 1

1.

Actual Quantity of Input at Actual Price	Actual Quantity of Input at Standard Price	Standard Quantity allowed for out put at Standard Price
( AQ * AP)	(AQ * SP)	(SQ * SP)
	8,800 yards * 6.8 per yard	8050 Yards * 6.8 per yard
$ 50,600	$ 59,840	$ 54,740

Material Price Variance = $ 50,600 - $ 59,840 = $ 9,240 F

Material Quantity Variance = $ 59,840 - $ 54,740 = $ 5,100 U

Spending Variance = $ 9,240 - $ 5,100 = $ 4,140 F

Explanation

* $ 23.80 ÷ 3.5 Year = $ 6.8 Per Yard

** 2,300 Set * 3.5 Years Per Set = 8,050 Yards

2.

Actual Hours of Input at the Actual Rate	Actual Hours of Input at the Standard Rate	Standard Hours Allowed for output at the standard rate
( AH * AR)	(AH * SR)	(SH * SR)
	1000 Hours * $ 9 Per Hour	1,150 Hours * 9 Per Hour
$ 10,580	$ 9,000	$ 10,350

Labour Rate Variance = $ 10,580 - $ 9,000 = $ 1,580 U

Labour Efficiency Variance = $ 9,000 - $ 10,350 = $ 1350 F

Spending Variance = $ 1,580 - $ 1,350 = $ 230 U

Explanation;

* 995 standard hours ÷ 1990 sets = 0.5 standard hour per set ,

$ 4.50 standard cost per set ÷ .5 Standard Hours Per set = $ 9 Standard Rate per hour

** 2,300 sets * .5 standard hour per set = 1,150 Standard hour.

3.

Actual Hours of Input at the Actual Rate	Actual Hours of Input at the Standard Rate	Standard Hours Allowed for output at the standard rate
( AH * AR)	( AH * SR)	( SH * SR)
	1,000 Hours * 2.4 Per Hour	1,150 Hour * 2.4
$ 4,600	$ 2,400	$ 2,760

Variable Overhead Rate Variance = $ 4,600 - $ 2,400 = $ 2200 U

Variable Overhead Efficiency Variance = $ 2,400 - $ 2,760 = $ 360 F

Spending Variance = $ 2,200 - $ 360 = $ 1,840 U

Explanation;

* 1.20 standard cost per set ÷ 0.50 standard Hours per set = $ 2.4 standard rate per hour.