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: Total $ 40,560 $ 7,280 Per Set of Covers $19.50 3.50 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 4,160 - 2.69 During August, the factory worked only 600 direct labor hours and produced 1,800 sets of covers. The following actual costs were recorded during the month: Direct materials (5,000 yards) Direct labor 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 25 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 os positive values.) 1 Materials price variance Materials quantity variance 2. Labor rate variance

Answer 1

1) Material Price Variance = Actual yards used x (Standard Price - Actual Price) Actual quantity used (yards) 5,000 Standard price per yard $7.80 ($19.50 / 2.5 yards] Actual price per yard $6.84 [$34200 / 5000 yards] Material Price Variance $4,800 F [It is favorable as actual price is less than the standard price per yard] [5000 yards x ($7.80 - $6.84)] Material Quantity Variance = (Standard yards required - Actual yards used) x Standard Price per yard Standard yards required Actual quantity used (yards) Standard price per yard Material Quantity Variance 4,500 [1,800 set of covers x 2.5 yards] 5,000 $7.80 ($19.50 / 2.5 yards] $3,900 U [It is unfavorable as actual quantity used is more than the standard quantity required] [(4500 - 5000) yards x $7.80]

2) Direct Labor Rate Variance = Actual hours used x (Standard Rate - Actual Rate) Actual direct labor hours worked 600 Standard labor rate per DLH $7.00 [$7,280 / 1,040 hours --> As per budgeted figure] Actual labor rate per DLH $11.10 ($6660 / 600 hours) Direct Labor Rate Variance $2,460 U (It is unfavorable as actual rate is more than the standard rate per DLH] [600 DLHs x ($7.00 - $11.10)] Standard labor hours allowed 900 (1,800 set of covers x (1,040 hours / 2,080 set of covers) --> As per budgeted figure] Actual direct labor hours worked 600 Standard labor rate per DLH $7.00 $7,280 / 1,040 hours --> As per budgeted figure] Direct Labor Efficiency Variance $2,100 F (It is favorable as actual hours used is less than the standard hours required] [(900 - 600) DLHS x $7.00]

3) 600 Actual direct labor hours worked Standard VOH rate per labor hour $4.00 [$4160 / 1,040 hours] Actual VOH rate per labor hour $6.90 [$4140 / 600 DLHS] Variable Overhead Rate Variance $1,740 U [It is unfavorable as actual rate is higher than the standard rate per DLH] [600 DLHs x ($4.00 - $6.90)] Standard labor hours allowed 900 [1,800 set of covers x (1,040 hours / 2,080 set of covers) --> As per budgeted figure] Actual direct labor hours worked 600 Standard VOH rate per labor hour $4.00 [$4140 / 600 DLHs] Variable Overhead Efficiency Variance $1,200 F (It is favorable as actual hours used is less than the standard hours required] [(900 - 600) DLHs x $4.00]