Question

# Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat...

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 1,015 hours each month to produce 2,030 sets of covers. The standard costs associated with this level of production are:

Total   Per Set
of Covers
Direct materials   \$   59,276   \$   29.20
Direct labor   \$   8,120      4.00
Variable manufacturing overhead (based on direct labor-hours)   \$   3,857      1.90
\$   35.10

During August, the factory worked only 700 direct labor-hours and produced 1,500 sets of covers. The following actual costs were recorded during the month:

Total   Per Set
of Covers
Direct materials (8,400 yards)   \$   42,000   \$   28.00
Direct labor   \$   6,300      4.20
Variable manufacturing overhead   \$   3,150      2.10
\$   34.30

At standard, each set of covers should require 4.0 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.

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 1,015 hours each month to produce 2,030 sets of covers. The standard costs associated with this level of production are:

 Total Per Set of Covers Direct materials \$ 59,276 \$ 29.20 Direct labor \$ 8,120 4.00 Variable manufacturing overhead (based on direct labor-hours) \$ 3,857 1.90 \$ 35.10

During August, the factory worked only 700 direct labor-hours and produced 1,500 sets of covers. The following actual costs were recorded during the month:

 Total Per Set of Covers Direct materials (8,400 yards) \$ 42,000 \$ 28.00 Direct labor \$ 6,300 4.20 Variable manufacturing overhead \$ 3,150 2.10 \$ 34.30

At standard, each set of covers should require 4.0 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.

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

= (29.20/4-42000/8400)*8400 = \$19320 Favorable

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

= (1500*4-8400)*(29.20/4) = \$17520 Unfavorable

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

= (4.00/0.50-6300/700)*700= \$700 Unfavorable

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

= (1500*0.50-700)*(4.00/0.50) = \$400 Favorable

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

= (1.90/0.50-3150/700)*700 = \$490 Unfavorable

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

= (1500*0.50-700)*(1.90/0.50) = \$190 Favorable

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