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 1,065 hours each month to produce 2,130 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	35,358	$	16.60
Direct labor	$	8,520		4.00
Variable manufacturing overhead (based on direct labor-hours)	$	3,195		1.50
			$	22.10

During August, the factory worked only 1,050 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,000 yards)	$	43,740	$	16.20
Direct labor	$	11,340		4.20
Variable manufacturing overhead	$	5,670		2.10
			$	22.50

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.

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 2. Labor rate variance Labor efficiency variance 3. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

(A)

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

= 6000 x ($16.60 - $16.20)

= $2400 Favorable

(B)

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

= $16.60 x (5400 - 6000)

= $9960 Unfavorable

Where,

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

= 2700 x 2 = 5400 yards

(C)

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

= 1050 x ($4 - $4.20)

= $210 Unfavorable

(D)

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

= $4 x (1350 - 1050)

= $1200 Favorable

Where,

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

= 2700 x (1065/2130) = 2700 x 0.5 hour = 1350

(A)

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

= 37200 x ($10.50 - $9.75)

= $27900 Favorable

Where,

Actual rate = actual labor cost/actual hours

= $362700/37200 = $9.75

(B)

Variable overhead efficiency variance = standard rate x (standard hours - actual hours)

= ($22500/10000) x (11000 - 11250)

= $2.25 x $250

= $562.50 U