Question

*******This is the 4th time around for the very same question. The previous posts have 6.7 as Actual Quantity. AQ ( AP-SP) for the first question of Materials Price Variance. WHERE DOES 6.7 COME FROM? Please show this calculation. Thank you.*********

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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are:
Total Per Set of Covers

Direct materials $ 39,798 $20.10

Direct labor $ 5,940 3.00

Variable manufacturing overhead (based on direct labor-hours) $ 3,168 1.60
Total $24.70

During August, the factory worked only 1,000 direct labor-hours and produced 2,200 sets of covers. The following actual costs were recorded during the month:
Total Per Set of Covers

Direct materials (7,400 yards) $ 40,700 $18.50

Direct labor $ 8,140 3.70

Variable manufacturing overhead $ 3,960 1.80

Total $24.00

At standard, each set of covers should require 3.0 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.
(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.)

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Answer 1

(a): Comutation of Material Price & Quantity Variance

Materials price variance = AQ *(SP-AP) = 7400*($6.70-$5.50) = $8880 F

Materials quantity variance = SP*(SQ-AQ) = $6.70(6600-7400) = $5360 UF

SQ= Actual UnitX Std qty per Unit

=2200 X 3 yard= 6600 Yard

SP= $20.10/3 Yard=$6.70

AP= 40700/7400=$5.50

(c): Comutation of Variable Rate & Efficiency Variance

Variable OH rate variance = AH*(SR-AR) = 1000*($3.20- 3.90) = $700 UF

Variable OH efficiency variance = SR*(SH-AH) = 3.20*((1100-1000) = $320 F

AR= $3960/1000= $3.90

SR= 3168/990=$3.20

(b): Comutation of Labour Rate & Efficiency Variance

Labor rate variance = AH*(SR-AR) = 1000*($6- $8.14) = $2140 UF

Labor efficiency variance = SR*(SH-AH) = 6*(1100-1000) = $600 F

Std Hour= (2200 Unit/( 1980/990))=1100 Hour

AR= $8140/1000= $8.14

SR= 5940/990=$6