Marvel Parts, Inc, manufactures auto accessones. One of the company\'s products

Question

Marvel Parts, Inc, manufactures auto accessones. 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 2100 sets of covers. The standard costs associated with this level of production are: Direct materials Direct labor Variable manufacturing overhead (based on 38.640 $18.40 $ 6,3003.00 direct labor ours) 3, 154, 22.90 During August, the factory worked only 500 direct labor hours and produced 2000 sets of covers. The following actual costs were recorded during the month: Direct materials (5,000 yards) Direct Labor Varlable manufacturing overhead Total of Covn 36,000 518- 6,400 5 4,40220 23.40 At standard, each set of covers should require 2.3 yards of matenal 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 offect of each variance by selecting "Fi for fevorable, ru' for unfevorablie and 'Nonei for no effect (Le. zero

Explanation / Answer

1)Material price variance = Actual cost - [AQ *SR]

           = 36000 - [5000*8]

          = 36000- 40000

             = 4000 F

**SR = standard cost per cover /standard quantityper cover

      = 18.4/2.3 = 8

material quantity variance = SR[AQ-SQ

                          = 8[5000-(2000*2.3)]

                             8[5000 - 4600]

                              3200 U

2)Labor rate variance = Actual cost - [AH * SR]

         = 6400- [500*10]

           = 6400-5000

            = 1400 U

**Standard hour per cover =630/2100 = .30 per hour

standard cost per hour = 3 /.30 = $ 10 per hour

Direct labor efficiency variance = SR [AH-SH]

                 = 10[500- (2000*.30)]

                  = 10[500-600]

                 = 1000 F

3)Variable overhead rate variance = Actual cost - [AH*SR]

       = 4400- [500*5]

       = 4400-2500

         =1900

**SR = 1.5/.30 =$ 5 per hour

variable overhead efficiency variance= 5 [500-600]

                              = 500 F

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