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 $ 35,358 $ 8,520 Per Set of Covers $16.60 4.00 Direct materials Direct labor 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: Direct materials (6,000 yards) Direct labor Variable manufacturing overhead Total $ 43,740 $ 11,340 $ 5,670 Per Set of Covers $16.20 4.20 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.

Answer 1

1. Materials price variance = (Standard price - actual price) x Material purchased
= {($16.60/2) - ($43740 / 6,000)} x 6000 = $6060 Favorable

Materials quantity variance = (Standard quantity - actual quantity used) x standard price
= {(2700*2) - 6000} x $16.60/2 = $4980 Unfavorable

2. Labor rate variance = (Standard rate - actual rate) x Actual hours used
= {($8520/1065) - ($11340/1050)} x 1050 = $2940 Unfavorable

Labor efficiency variance = (Standard hours - actual hours) x Standard rate
= {(1065/2130*2700) - 1050} x $8520/1065 = $2400 Favorable

3. Variable overhead rate variance = (Standard rate - actual rate) x Actual hours used
= {($3195/1065) - ($5670/1050)} x 1050 = $2520 Unfavorable

Variable overhead efficiency variance = (Standard hours - actual hours) x Standard rate
= {(1065/2130*2700) - 1050} x $3195/1065 = $900 Favorable