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 1,045 hours each month to produce 2,090 sets of covers. The standard costs associated with this level of production are:

  

	Total		Per Set of Covers
Direct materials	$	49,533	$	23.70
Direct labor	$	10,450		5.00
Variable manufacturing overhead       (based on direct labor-hours)	$	4,598		2.20
			$	30.90

  

During August, the factory worked only 800 direct labor-hours and produced 1,900 sets of covers. The following actual costs were recorded during the month:

	Total		Per Set of Covers
Direct materials (6,500 yards)	$	44,460	$	23.40
Direct labor	$	9,880		5.20
Variable manufacturing overhead	$	4,560		2.40
			$	31.00

  

At standard, each set of covers should require 3.00 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

      

2.	Compute the labor rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

      

3.	Compute the variable overhead rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

     

Answer 1

1. Computation Materials price and Market Quantity Variance

Materials price Variance = (Standard Price - Actual Price) * Actual Quantity

Materials price Variance = ($23.70 - $23.40) * 6500

Materials price Variance = $1950 Favorable

Market Quantity Variance = (Actual Quantity - Standard Quantity) * Standard Price

Market Quantity Variance = (6500 - 5700) * $23.70

Market Quantity Variance = $18960 Unfavorable

2. Computation of Labor Rate and Efficiency Variance

Labor Rate Variance = Standard Rate * Actual Quantity - Actual Rate * Actual Quantity

Labor Rate Variance = $5 * 1900 - $excel5.20 * 1900

Labor Rate Variance = $380 Unfavorable

Labor Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate

Labor Efficiency Variance = (800 - 950) * $2.50

Labor Efficiency Variance = $375 favorable

3. Computation of Variable OH Rate and Efficiency Variance

Variable OH Rate Variance = Actual Variable OH - Actual Quantity * Standard Variable OH Rate

Variable OH Rate Variance = $4560 - $4180 = $380 Favorable

Variable OH Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate

Variable OH Efficiency Variance = (800 - 950) * $1.1

Variable OH Efficiency Variance = $150 favorable