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 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.

Answer 1

hours	2850
Covers	1900
Cover Per Hour	1.5	(2850/1900)
	Total	Per Cover
Direct Material	42560	22.4
Direct Labour	51300	27
Variable OH	6840	3.6	(6840/2850)*1.5
Actual 2800 Hours and 2000 Covers
Direct Material	45600	22.8
Direct Labour	49000	24.5
Variable OH	7000	4.9	(7000/2800)1.4
Material Price Variance	0.4	800	(22.8-22.4)
Quantity Variance		100	(2000-1900)
Labour Rate	-2.5	-7000	(24.5-27)
Efficiency (Budget - Actual)
Actual Labour Rate		17.5	(49000/2800)
Budgeted		24.5
Efficiency		-14000