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 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are:

	Total		Per Set of Covers
Direct materials	$	42,560	$	22.40
Direct labor	$	51,300		27.00
Variable manufacturing overhead (based on direct labor-hours)	$	6,840		3.60
			$	53.00

During August, the factory worked only 2,800 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (12,000 yards)	$	45,600	$	22.80
Direct labor	$	49,000		24.50
Variable manufacturing overhead	$	7,000		3.50
			$	50.80

At standard, each set of covers should require 5.6 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.)

Answer 1

1. Material price variance = (Standard price - actual price)*actual quantity

= (22.40/5.60-45600/12000)*12000 = $2400 Favorable

Material quantity variance = (Standard quantity - actual quantity)*standard rate

= (2000*5.60-12000)*(22.40/5.60) = $3200 Unfavorable

2. Labor rate variance = (standard rate - actual rate)*actual hours

= (27/1.50-49000/2800)*2800= $1400 Favorable

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

= (2000*1.50-2800)*(27/1.50) = $3600 Favorable

3. Variable overhead rate variance = (standard rate - actual rate)*actual hours

= (3.60/1.50-7000/2800)*2800

= $280 Unfavorable

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

= (2000*1.50-2800)*(3.60/1.50)

= $480 Favorable