Marvel Parts, Inc., manufactures auto accessories. One of the company\'s product

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 630 hours each month to produce 2,100 sets of covers. The standard costs associated with this level of production are Per Set Total of Covers Direct materials Direct labor Variable manufacturing overhead $38,640 $18.40 $ 6,300 3.00 $ 3,150 1.50 $22.90 (based on direct labor-hours) During August, the factory worked only 500 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month Per Set Total of Covers Direct materials (5,000 yards) Direct labor Variable manufacturing overhead $36,000 $18.00 $ 6,400 3.20 $ 4,400 2.20 $23.40 At standard, each set of covers should require 2.30 yards of material. All of the materials purchased during the month were used in production.

Explanation / Answer

Std material qty allowed (2000*2.3): 4600 units Std price per unit: (18.40/2.3): $8 per unit Actual Quantity: 5000 units Actual Price per unit (36000/5000): 7.20 per unit Material price variance: Actual qty (Std price-Actual price) 5000 (8.00-7.20) = $4000 fav Material Efficiency variance: Std price (Std qty-Actual Qty) 8.00 (4600-5000)= $ 3200 unfav Std labour hours allowed: (2000*0.3): 600 hours Std rate per hour (3.00/0.3): 10 per hour Actual hours: 500 hours Actual rate per hour: (6400/500)12.80 per hour Labour rate variance: Actual hours (Std rate-Actual rate) 500 (10.00-12.80)= 1400 unfav Labour efficiency variance: Std rate (Std hours-Actual hours) 10.00 (600-500): $ 1000 fav Std Variable OH rate per hour; 5.00 per hour Actual variable OH rate per hour: 4400/500: 8.80 per hour Variable OH rate variance: Actual hours (Std OH rate-Actual OH rate) 500 (5.00-8.80)= 1900 unfav Variable OH efficiency variance: Std rate (Std hours-Actual hours) 5.00 (600-500): 500 fav

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