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 1,070 hours each month to produce 2,140 sets of covers. The standard costs associated with this level of production are Per Set Direct materials Direct labor Variable manufacturing overhead Total of Covers $26,964 $12.60 $11,770 5.50 (based on direct labor-hours) $ 3,638 1.7 19.80 During August, the factory worked only 1,000 direct labor-hours and produced 2,400 sets of covers. The following actual costs were recorded during the month: Per Set of Covers Total Direct materials (6,000 yards) Direct labor $29,280 $12.20 $13,680 5.70 $ 5,760 2.40 Variable manufacturing overhead S20.30 At standard, each set of covers should require 1.50 yards of material. All of the materials purchased during the month were used in production

Explanation / Answer

Material Price variance = (Standard price - Actual price) x Actual quantity
= {($12.60 / 1.50) - ($29,280 / 6,000) x 6,000
= ($8.40 - $4.88) x 6,000 = $21,120 Favorable

Material quantity variance = (Standard quantity - Actual quantity) x Standard price
= {(2,400 x 1.50) - 6,000) x $8.40
= $20,160 Unfavorable

Labor rate variance = (Standard rate - Actual rate) x Actual hour
= {($5.50 / 0.5) - ($13,680 / 1,000)} x 1,000
= ($11 - $13.68) x 1,000 = $2,680 Unfavorable

Labor efficiency variance = (Standard hours - Actual hours) x Standard rate
= {(1,070 / 2,140 x 2,400) -   1,000} x $11
= (1,200 - 1,000) x $11 = $2,200 Favorable

Variable overhead rate variance = (Standard rate - Actual rate) x Actual hour
= {($1.70 / 0.5) - ($5,760 / 1,000)} x 1,000
= ($3.40 - $5.76) x 1,000 = $2,360 Unfavorable

Variable overhead efficiency variance = (Standard hours - Actual hours) x Standard rate
= {(1,070 / 2,140 x 2,400) -   1,000} x $3.40
= (1,200 - 1,000) x $3.40 = $680 Favorable

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