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 1990 sets of covers. The standard costs associated with this level of production are: Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) Total $ 47,362 $ 8,955 Per Set of Covers $23.30 4.50 $ 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: Direct materials (8,500 yards) Direct labor Variable manufacturing overhead Total $ 50, 600 $ 10,530 $4,600 Per Set of Covers $22.00 4.60 2.00 $28.60

Answer 1

Solution 1:

Standard quantity of material for actual production = 2300*3.5 = 8050 Yard

Actual quantity of material = 8800 Yard

Standard price of material = $23.80/3.5 = $6.8 per yard

Actual price of material = $50,600 / 8800 = $5.75 per yard

Material price variance = (SP - AP) * AQ = ($6.8 - $5.75) * 8800 = $9,240 F

Material quantity variance = (SQ - AQ) * SR = (8050 - 8800) * $6.8 = $5,100 U

Solution 2:

Standard hours of direct labor = 2300 * 0.5 = 1150 hours

Standard rate of direct labor = $8,955/995= $9 per hour

Actual hours of direct labor = 1000 hours

Actual rate of direct labor = $10580 / 1000 = $10.58 per hour

Direct labor rate variance = (SR - AR) * AH = ($9 - $10.58) * 1000 = $1,580 F

Direct labor efficiency variance = (SH - AH) * SR = (1150 - 1000) * $9 = $1,350 F

Solution 3:

Standard hours of direct labor = 2300 * 0.5 = 1150 hours

Standard rate of variable overhead = $2,388/995 = $2.40 per hour

Actual hours of direct labor = 1000 hours

Actual rate of variable overhead = $4,600 / 1000 = $4.60 per hour

Variable overhead rate variance = (SR - AR) * AH = ($2.40 - $4.60) * 1000 = $2200 U

Variable overhead efficiency variance = (SH - AH) * SR = (1150 - 1000) * $2.40 = $360 F