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. (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. Materials Price and Quantity Variances:

Materials Price Variance = ( Standard price per yard - Actual cost per yard) x Actual quantity purchased = $ ( 4.00 - 3.80) x 12,000 = $ 2,400 F.

Materials Quantity Variance = ( Standard quantity for actual output - Actual quantity used) x Standard rate per yard = ( 2,000 x 5.6 - 12,000) x $ 4.00 = $ 3,200 U

2. Labor Rate and Efficiency Variances:

Labor Rate Variance = ( Standard rate per hour - Actual rate paid ) x Actual Hours Used = $ ( 18.00 - 17.50) x 2,800 = $ 1,400 F

Labor Effficiency Variance = ( Standard hours for actual output - Actual hours worked) x Standard rate per hour = ( 3,000 - 2,800) x $ 18.00 = $ 3,600 F

3. Variable Overhead Rate and Efficiency Variances:

Variable overhead rate variance = ( Standard rate per hour - Actual rate per hour) x Actual hours used = $ ( 2.40 - 2.50) x 2,800 = $ 280 U

Variable overhead efficiency variance = ( Standard hours for actual output - Actual hours used) x Standard rate per hour = ( 3,000 - 2,800) x $ 2.40 = $ 480 F