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 1,045 hours each month to produce 2,090 sets of covers. The standard costs associated with this level of production are:

During August, the factory worked only 800 direct labor-hours and produced 1,900 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 3.0 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.

1.Materials price varianceMaterials quantity variance2.Labor rate varianceLabor efficiency variance3.Variable overhead rate varianceVariable overhead efficiency variance

Total Per Set
of Covers Direct materials $ 49,533 $ 23.70 Direct labor $ 10,450 5.00 Variable manufacturing overhead (based on direct labor-hours) $ 4,598 2.20 $ 30.90

Explanation / Answer

1)

Standard Cost Per yard = $49533 / (3*2090) = $7.9 per yard

Actual Cost per yard = $44460 / 6500 = 6.84 per yard

Materials Price Variance :-

= Actual Quantity * (Actual Price - Standard Price)

= $6500 * ($6.84 - $7.9)

= $6890 F

Materials Quantity Variance ;-

= Standard Price * (Actual Quantity - Standard Quantity)

= $7.9 * (6500 - (3*2090))

= $7.9 * 230

= $1817 Unf

2)

Standard Rate = $10450 / 1045 = $10 per h

Actual Rate = $9880 / 800 = $12.35 per h

Labor Rate Variance = Actual Hours * (Actual Rate - Standard Rate)

= 800 * ($12.35 - $10)

= 800 * $2.35

= $1880 Unf.

Labor Efficiency Variance = Standard Rate * ( Actual hours - Standard hours)

= $10 * (800 - 1045)

= $10 * 245

= $2450 F

3)

Standard Rate = $4598 / 1045 = $4.4

Actual Rate = $4560 / 800 = $5.7

Variable Overhead Rate Variance = Actual Hours * (Actual Rate - Standard Rate)

= 800 * ($5.7 - $4.4)

= 800 * $1.3

= $1040

Variable Overhead Efficiency Variance :-

Standard Hours Required Per Cover = Standard Labor Hours / Standard Production

= 1045 / 2090 = 0.5 h per cover

Variable Overhead Efficiency Variance = Standard Rate * (Actual Hours - Standard Hours)

= $4.4 * (800 - (1900*0.5))

= $4.4 * 150

= 660 F

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