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 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are:

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:

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.

Total Per Set
of Covers Direct materials $ 42,560 $ 22.40 Direct labor $ 51,300 27.00 Variable manufacturing overhead (based on direct labor-hours) $ 6,840 3.60 $ 53.00

Explanation / Answer

1. Materials price variance = (Standard price - actual price) x Material purchased
= {($22.40 / 5.6) - ($45,600 / 12,000)} x 12,000 = $2,400 Favorable

Materials quantity variance = (Standard quantity - actual quantity used) x standard price
= {(2,000 x 5.6) - 12,000} x $22.40 / 5.6 = $3,200 Unfavorable

2. Labor rate variance = (Standard rate - actual rate) x Actual hours used
= {($51,300 / 2,850 - ($49,000 / 2,800) x 2,800 = $1,400 Favorable

Labor efficiency variance = (Standard hours - actual hours) x Standard rate
= {(2,850 / 1,900 X 2,000) - 2,800} x $51,300 / 2,850 = $3,600 Favorable

3. Variable overhead rate variance = (Standard rate - actual rate) x Actual hours used
= {($6,840 / 2,850 - ($7,000 / 2,800) x 2,800 = $280 Unfavorable

Variable overhead efficiency variance = (Standard hours - actual hours) x Standard rate
= {(2,850 / 1,900 X 2,000) - 2,800} x $6,840 / 2,850 = $480 Favorable

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