Marvel Parts, Inc., manufactures auto accessories. One of the company’s products
ID: 2429581 • Letter: M
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 1,005 hours each month to produce 2,010 sets of covers. The standard costs associated with this level of production are:
During August, the factory worked only 1,200 direct labor-hours and produced 2,600 sets of covers. The following actual costs were recorded during the month:
At standard, each set of covers should require 2.0 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.)
Total Per Setof Covers Direct materials $ 28,542 $ 14.20 Direct labor $ 8,040 4.00 Variable manufacturing overhead (based on direct labor-hours) $ 3,618 1.80 $ 20.00
Explanation / Answer
1) Materials price variance $ 7,500 F Materials quantity variance $ 5,680 U 2) Labor rate variance $ 1,320 U Labor efficiency variance $ 800 F 3) Variable overhead rate variance $ 1,140 U Variable overhead efficiency variance $ 360 F Workings: Step-1:Calculation of standard data a. Output at standard 2010 Standard Material quantity per unit of output at standard 2.00 Yards Standard Total material quantity at standard 2010 x 2.00 Yards = 4,020 Yards Standard Materials cost at standard $ 28,542 So, Standard Material cost per unit = $ 28,542 / 4,020 Yards = $ 7.10 per yard b. Standard Labor cost per hour = $ 8,040 / 1005 = $ 8.00 Standard Labor hour per unit = 1005 / 2010 = 0.50 Hour c. Variable overhead rate per hour = $ 3,618 / 1005 = $ 3.60 Standard Variable overhead hour = 1005 / 2010 = 0.50 Hour Step-2:Calclation of Various standards a. Material Price Variance = (Standard Price-Actual Price)*Actual Materials Quantity = (7.10-5.85)*6000 = $ 7,500 F Working: Actual Material Price = Actual Material cost/Actual Material used = $ 35,100.00 / 6000 = $ 5.85 b. Material Quantity variance = (Standard Quantity-Actual Qauntity)*Standard Material Price = (5200-6000)*7.10 = $ 5,680 U Working: Standard Material Quantity = Actual Output*Standard Material Qauntity per unit of output = 2600*2 = 5200 c. Labor rate Variance = (Standard rate-Actual rate)*Actual labor hours = (8.00-9.10)*1200 = $ 1,320 U Working: Actual Labor cost = $ 10,920.00 / 1200 = $ 9.10 d. Labor efficiency Variance = (Standard Labor hours-Actual Labor hours)*Standard Labor rate = (1300-1200)*8.00 = $ 800 F Working; Standard Labor hours = Actual Output*Standard Labor hour per unit = 2600*0.50 = 1300 e. Variable overhead rate variance = (Standard rate-Actual Rate)*Actual Labor hours = (3.60-4.55)*1200 = $ 1,140 U working: Actual Variable overhead rate per hour = $ 5,460.00 / 1200 = $ 4.55 f. Variable overhead efficiency variance = (Standard Labor hour-Actual Labor hours)*Standard Variable overhead rate = (1300-1200)*3.60 = $ 360 F
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