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 995 hours each month to produce 1,990 sets of covers. The standard costs associated with this level of production are:

During August, the factory worked only 1,000 direct labor-hours and produced 2,300 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 3.50 yards of material. All of the materials purchased during the month were used in production.

Compute the materials price and quantity variances for August

Compute the labor rate and efficiency variances for August

Compute the variable overhead rate and efficiency variances for August.

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 995 hours each month to produce 1,990 sets of covers. The standard costs associated with this level of production are:

Explanation / Answer

Direct Material Price Variance = Actual Quantity (Actual Price - Standard Price)

= 8800 (50600/8800 - 47362/1990*3.5) = 8800 (5.75 - 6.80) = 9240

Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) * Standard Price

= (8800 - 2300*3.5) * 6.80 = 5100

Labour rate Variance = Actual Hours * (Actual Rate - Standard Rate)

= 1000 (10580/1000 - 8955/995) = 1000 * (10.58 - 9.38) = 1200

Labour efficiency Variance = (Actual hours - Standard hours) x Standard rate

= (1000 - 995/1990*2300) * 9.38 = 1407

Variable Overhead Rate Variance = Actual hours worked x (Actual overhead rate - standard overhead rate)

= 1000 (4600/1000 - 2388/995) = 1000 (4.6 - 2.4) = 2200

Variable Overhead efficiency variance = Standard overhead rate x (Actual hours - standard hours)

= 2.40 * (1000 - 995/1990*2300) = 360

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