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 2,850 hours each month to produce 1,900 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 (based $ 42,560 $22.40 $ 51,300 27.00 3.60 $53.00 on direct labor-hours) $ 6,840 During August, the factory worked only 2,800 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 (12,000 yards) Direct labor 45,600 $22.80 49,000 24.50 3.50 Variable manufacturing overhead $ 7,000 $50.80 At standard, each set of covers should require 5.6 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.) 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

Solution 1:

Standard quantity of material for actual production = 2000*5.60 = 11200 Yard

Actual quantity of material = 12000 Yard

Standard price of material = $22.40/5.60 = $4 per yard

Actual price of material = $45,600 / 12000 = $3.80 per yard

Material price variance = (SP - AP) * AQ = ($4 - $3.80) * 12000 = $2,400 F

Material quantity variance = (SQ - AQ) * SR = (11200 - 12000) * $4 = $3,200 U

Solution 2:

Standard hours of direct labor = 2000 * 1.50 = 3000 hours

Standard rate of direct labor = $51,300/2850 = $18 per hour

Actual hours of direct labor = 2800 hours

Actual rate of direct labor = $49,000 / 2800 = $17.50 per hour

Direct labor rate variance = (SR - AR) * AH = ($18 - $17.50) * 2800 = $1,400 F

Direct labor efficiency variance = (SH - AH) * SR = (3000 - 2800) * $18 = $3,600 F

Solution 3:

Standard hours of direct labor = 2000 * 1.50 = 3000 hours

Standard rate of variable overhead = $6,840/2850 = $2.40 per hour

Actual hours of direct labor = 2800 hours

Actual rate of variable overhead = $7,000 / 2800 = $2.50 per hour

Variable overhead rate variance = (SR - AR) * AH = ($2.40 - $2.50) * 2800 = $280 U

Variable overhead efficiency variance = (SH - AH) * SR = (3000 - 2800) * $2.40 = $480 F

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