Marvel Parts, Inc., manufactures auto accessories. One of the company’s products

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:

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:

At standard, each set of covers should require 2.3 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.

3. Compute the variable overhead rate and efficiency variances for August.

Total Per Set
of Covers Direct materials $ 38,640 $ 18.40 Direct labor $ 6,300 3.00 Variable manufacturing overhead (based on direct labor-hours) $ 3,150 1.50 $ 22.90 1. Materials price variance Materials quantity variance 2. Labor rate variance Labor efficiency variance 3. Variable overhead rate variance Variable overhead efficiency variance

Explanation / Answer

1) Direct material price variance = (8*5000-36000) = 4000 F

Direct material quantity variance = (2000*2.3-5000)*8 = 3200 U

2) Direct labour rate variance = (10*500-6400) = 1400 U

Direct labour efficiency variance = (2000*.3-500)*10 = 1000 F

3) Variable overhead rate variance = (5*500-4400) = 1900 U

Variable overhead efficiency variance = (2000*.3-500)*5 = 500 F

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