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 uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are: Total $ 54,825 $ 10,750 Der Set of Covers $25.50 5.00 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 5,375 2.50 $33.00 During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month: Direct materials (12,500 yards) Direct labor Variable manufacturing overhead Total $ 58,750 $ 13,000 $ 7,000 Per Set of Covers $23.50 5.20 2.80 $31.50 At standard, each set of covers should require 3.0 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.)

Please solve second part of 2 and all of 3. I got 4,000 for Labor efficiency variance, but that is not correct and I don't know why.

Answer 1

Data for Resource Variance

Resource	Standard (2,500 units)			Actual (2,500 units)
	Quantity	Rate	Total Cost	Quantity	Rate	Total Cost
Direct Material	7,500 yards	$ 8.50	$ 63,750	12,500 yards	$ 4.70	$ 58,750
Direct Labour	1,250 hours	$ 10.00	$ 12,500	800 hours	$ 16.25	$ 13,000
Variable Overheads	1,250 hours	$ 5.00	$ 6,250	800 hours	$ 8.75	$ 7,000

Answer 1)

Material Price Variance

Material price variance = (Standard Price per unit – Actual Price per unit) X Actual Quantity consumed

                                                             = ($ 8.50 - $ 4.70) X 12,500 yards

                                                             = $ 47,500 (Favourable)

Therefore Material price variance is $ 47,500 (favourable)

Material Quantity Variance (Material Usage Variance)

Material quantity variance = (Standard Quantity – Actual Quantity) X Standard Price per unit

                                                             = (7,500 yards – 12,500 yards) X $ 8.50 per yard

                                                             = $ 42,500 (Unfavourable)

Therefore Material Quantity variance is $ 42,500 (Unfavourable)

Answer 2)

Labour Rate Variance

Labour rate variance = (Standard rate per hour – Actual rate per hour) X Actual Direct labour hours

                                           = ($ 10.00 - $ 16.25) X 800 labour hours

                                           = $ 5,000 (Unfavourable)

Therefore Labour Rate variance is $ 5,000 (Unfavourable)

Labour Efficiency variance

Labour Efficiency variance = (Standard labour hours for actual output – Actual labour hours for actual output) X Standard rate per labour hour

                                                             = (1,250 labour hours – 800 labour hours) X $ 10.00 per hour

                                                             = $ 4,500 (favourable)

Therefore Labour efficiency variance is $ 4,500 (favourable)

Answer 3)

Variable overhead Rate Variance

Variable overhead rate variance = (Standard rate per hour – Actual rate per hour) X Actual Direct labour hours

                                           = ($ 5.00 - $ 8.75) X 800 labour hours

                                           = $ 3,000 (Unfavourable)

Therefore Variable overhead Rate variance is $ 3,000 (Unfavourable)

Variable overhead Efficiency variance

Variable overhead Efficiency variance = (Standard hours for actual output – Actual hours for actual output) X Standard Variable overhead rate per hour

                                                             = (1,250 labour hours – 800 labour hours) X $ 5.00 per hour

                                                             = $ 2,250 (favourable)

Therefore Variable overhead efficiency variance is $ 2,250 (favourable)

Working Notes:

Material:

Actual price per yard of material

Actual price per yard of material = Actual material cost/Actual yards of material consumed

                                                          = $ 58,750/ 12,500 yards

                                                         = $ 4.70 per yard

Standard price per yard of material

Standard price per yard of material = Standard material cost/Standard yards of material consumed

                                                          = $ 54,825/ (2,150 sets X 3.00 yards per set)

                                                          = $ 54,825/ 6,450 yards

                                                         = $ 8.50 per yard

Standard Quantity for actual output

Standard Quantity for actual output = Standard Material required per unit X Actual number of units produced

                                                                  = 3.00 yards per set of covers X 2,500 sets

                                                                 = 7,500 yards                 

Standard Material cost for actual output

Standard Material cost for actual output = Standard Quantity for actual output X Standard cost per yard

                                                                        = 7,500 yards X $ 8.50 per yard

                                                                        = $ 63,750  

Labour:

Actual rate per direct labour hour

Actual rate per direct labour = Actual labour cost/Actual direct labour hours worked

                                                          = $ 13,000/ 800 direct labour hours

                                                         = $ 16.25 per direct labour hour

Standard rate per direct labour hour

Standard rate per direct labour hour = Standard labour cost/Standard direct labour hours worked

                                                          = $ 10,750/ (1,075 direct labour hours)

                                                          = $ 10.00 per direct labour hour

Standard direct labour hours per unit

Standard direct labour hours per unit = Total Standard direct labour hours/Standard units produced

                                                          = 1,075 direct labour hours/ 2,150 set of covers

                                                         = 0.50 direct labour hour per set of covers

Standard Direct labour hours for actual output

Standard direct labour hours for actual output = Standard direct labour hour required per unit X Actual number of units produced

                                                                  = 0.50 hour per set of covers X 2,500 sets

                                                                 = 1,250 direct labour hours

Standard labour cost for actual output

Standard labour cost for actual output = Standard direct labour hours for actual output X Standard rate per direct labour hour

                                                                        = 1,250 direct labour hours X $ 10.00 per direct labour hour

                                                                        = $ 12,500  

Variable Overheads:

Actual variable overhead rate per hour

Actual variable overhead rate per labour = Actual variable overhead cost/Actual direct labour hours worked

                                                          = $ 7,000/ 800 direct labour hours

                                                         = $ 8.75 per direct labour hour

Standard variable overhead rate per hour

Standard variable overhead rate per hour = Standard variable overhead cost/Standard direct labour hours worked

                                                          = $ 5,375/ (1,075 direct labour hours)

                                                          = $ 5.00 per direct labour hour

Standard variable overhead cost for actual output

Standard variable overhead cost for actual output = Standard direct labour hours for actual output X Standard variable overhead rate per direct labour hour

                                                                        = 1,250 direct labour hours X $ 5.00 per direct labour hour

                                                                        = $ 6,250