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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are: Total $ 45,738 $ 6,930 Per Set of Covers $23.10 3.50 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,168 1.60 $28.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month: Direct materials (10,000 yards) Direct labor Variable manufacturing overhead Total $ 56,000 $ 9,250 $ 4,500 Per Set of Covers $22.40 3.70 1.80 $27.90 At standard, each set of covers should require 3.3 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.) 3,500 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

1) Material Price Variance = Actual yards used x (Standard Price - Actual Price) Actual yards used Standard price per yard Actual price per yard Material Price Variance 10,000 $7.00 [$23.10/3.3 yards] $5.60 ($22.40 / (10,000 yards / 2,500 set of covers)] $14,000 F (It is favorable as actual price is less than the standard price per yard] [10000 yards x ($7.00 - $5.60)] Material Quantity Variance = (Standard yard required - Actual yard used) x Standard Price per yard Standard yards required Actual yards used Standard price per yard Material Quantity Variance 8,250 [2,500 units x 3.3 yards] 10,000 $7.00 $12,250 U (It is unfavorable as actual quantity used is more than the standard quantity required] [(8250 - 10000) yards x $7.00] 2) Direct Labor Rate Variance = Standard Labor Cost allowed - Actual Labor Cost incurred Actual direct labor hours worked Standard labor rate per DLH Standard labor cost allowed Actual labor cost incurred Direct Labor Rate Variance 1,000 $7.00 [$6,930 / 990 hours] $7,000 (1000 hours x $7.00] $9,250 $2,250 U (It is unfavorable as actual cost incurred is more than standard labor cost allowed] ($7000 - $9250)

Direct Labor Efficiency Variance = Difference in direct labor hours used x Standard labor rate per direct labor hour Actual direct labor hours worked 1,000 Standard labor hours allowed 1,250 (2,500 sets of covers x (990 hrs / 1,980 sets of covers)] Difference in direct labor hours 250 (1000 hrs - 1250 hrs] Standard labor rate per DLH $7.00 [$6,930 / 990 hours] Direct Labor Efficiency Variance $1,750 F [It is favorable as actual hours worked is less than standard hours allowed] (250 hrs x $7.00) Variable Overhead Rate Variance = Standard Variable Overhead Cost allowed - Actual Variable Overhead Cost incurred 3) Actual labor hours used 1,000 Standard variable OH rate per labo hour $3.20 [$3,168 / 990 hours) Standard VOH for actual hours used $3,200 (1000 hours x $3.20] Actual variable overhead incurred $4,500 (Given] Variable overhead rate variance $1,300 U [It is unfavorable as actual VOH cost is higher than standard VOH incurred] ($3200 - $4500) Variable Overhead Efficiency Variance = Difference in direct labor hours used x Standard Variable Overhead rate per direct labor hour Actual labor hours used 1,000 Standard labor hours allowed 1,250 (2,500 sets of covers x (990 hrs / 1,980 sets of covers)] Short of machine hours used 250 (1000 hrs - 1250 hrs] Standard variable OH rate per labo hour $3.20 [$3,168 / 990 hours] Variable overhead efficiency variance $800 F [It is favorable as actual hours worked is less than standard hours allowed] (250 hrs x $3.20)