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 1,010 hours each month to produce 2,020 sets of covers. The standard costs associated with this level of production are Per Set Direct materials Direct labor Variable manufacturing overhead (based on Total of Covers $ 7,070 $ 3,030 36,360 $18.00 3.50 direct labor-hours) 1.50 $23.00 During August, the factory worked only 1,080 direct labor-hours and produced 2,700 sets of covers. The following actual costs were recorded during the month Per Set Total of Covers Direct materials (8,100 yards) Direct labor Variable manufacturing overhead $ 46,980 $17.40 3.70 1.70 $22.80 $ 9,990 $ 4,590 At standard, each set of covers should require 2.0 yards of material. All of the materials purchased during the month were used in production.

Explanation / Answer

Solution 1:

Standard quantity of material for actual production = 2700*2 = 5400 Yard

Actual quantity of material = 8100 Yard

Standard price of material = $18/2 = $9 per yard

Actual price of material = $46,980 / 8100 = $5.80

Material price variance = (SP - AP) * AQ = ($9 - $5.80) * 8100 = $25,920 F

Material quantity variance = (SQ - AQ) * SR = (5400 - 8100) * $9 = $24,300 U

Solution 2:

Standard hours of direct labor = 2700 * 0.50 = 1350 hours

Standard rate of direct labor = $7,070/1010 = $7 per hour

Actual hours of direct labor = 1080 hours

Actual rate of direct labor = $9,990 / 1080 = $9.25 per hour

Direct labor rate variance = (SR - AR) * AH = ($7 - $9.25) * 1080 = $2,430 U

Direct labor efficiency variance = (SH - AH) * SR = (1350 - 1080) * $7 = $1,890 F

Solution 3:

Standard hours of direct labor = 2700 * 0.50 = 1350 hours

Standard rate of variable overhead = $3,030/1010 = $3 per hour

Actual hours of direct labor = 1080 hours

Actual rate of variable overhead = $4,590 / 1080 = $4.25 per hour

Variable overhead rate variance = (SR - AR) * AH = ($3 - $4.25) * 1080 = $1,350 U

Variable overhead efficiency variance = (SH - AH) * SR = (1350 - 1080) * $3 = $810 F

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