Marvel Parts, Inc., manufactures auto accessories. One of the company’s products
ID: 2514148 • 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 1,020 hours each month to produce 2,040 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 2,900 sets of covers. The following actual costs were recorded during the month:
At standard, each set of covers should require 2.5 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.
Total Per Setof Covers Direct materials $ 37,740 $ 18.50 Direct labor $ 9,180 4.50 Variable manufacturing overhead (based on direct labor-hours) $ 2,448 1.20 $ 24.20 (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
1) Material Price Variance $ 14,560 F Material Quantity variance $ 13,690 U Working: a. Standard Material Price = Standard Material cost/Standard Material Quantity = $ 18.50 / 2.5 = $ 7.40 b. Actual Material Price = Actual Material cost/Actual Material Quantity = $ 52,780.00 / 9100 = $ 5.80 c. Standard Material Quantity = Actual units produced x Standard Quantity of material per unit of output (In Yards) = 2,900 x 2.5 = 7,250 d. Actual Material Quantity = 9,100 (In Yards) e. Material Price Variance = (Standard Price-Actual Price)*Actual Quantity = (7.40-5.80)*9100 = $ 14,560 f. Material Quantity variance = (Standard Quantity-Actual Quantity)*Standard Price = (7250-9100)*7.40 = $ -13,690 2) Labor rate variance $ 4,630.00 U Labor efficiency Variance $ 4,050.00 F Working: a. Standard Labor rate = Standard Labor cost/Standard Labor hours = $ 9,180.00 / 1,020.00 = $ 9.00 b. Actual Labor rate = Actual Labor cost/Actual Labor hours = $ 13,630.00 / 1,000.00 = $ 13.63 c. Standard Labor hours = Actual Units produced x Standard labor hour per unit = 2900 x (1020/2040) 1450 d. Actual Labor hours = 1,000 e. Labor rate variance = (Standard labor rate-Actual Labor rate)*Actual Labor hours = (9.00-13.63)*1000 = $ -4,630 f. Labor efficiency Variance = (Standard Labor hours-Actual labor hours)*Standard Labor rate = (1450-1000)*9.00 = $ 4,050.00 3) Variable Overhead rate variance $ 2,240.00 U Variable Overhead efficiency Variance $ 1,080.00 F Working: a. Standard Variable Overhead rate = Standard Variable Overhead cost/Standard Labor hours = $ 2,448.00 / 1,020.00 = $ 2.40 b. Actual Variable overhead rate = Actual Variable Overhead cost/Actual Labor hours = $ 4,640.00 / 1,000.00 = $ 4.64 c. Standard Labor hours = Actual Units produced x Standard labor hour per unit = 2900 x (1020/2040) 1450 d. Actual Labor hours = 1,000 e. Variable Overhead rate variance = (Standard Overhead rate-Actual Variable Overhead rate)*Actual Labor hours = (2.40-4.64)*1000 = -2240 f. Variable Overhead efficiency Variance = (Standard Labor hours-Actual labor hours)*Standard Variable Overhead rate = (1450-1000)*2.40 = 1080
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