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 1,055 hours each month to produce 2,110 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 $10,550 $4,853 $51,273 $24.30 S.00 2.30 $31.60 (based on direct labor-hours During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month: Per Set Total of Cover Direct materials (6,800 yards) Direct labor $49,980 $23.80 5.20 s5,4602.60 $31.60 $10,920 Variable manufacturing overhead 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. (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.) Answer is not complete. Materials price variance Materials quantity variance 11,421 2. Labor rate variance Labor efficiency variance Variable overhead rate variance Variable overhead efficiency 3.

Explanation / Answer

Solution:

1)

Material Price Variance

Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:

Material Price Variance = Actual Quantity (Standard Price – Actual Price)

Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.

Actual quantity of raw material purchased = 6800 Yards

Actual price per unit = $23.80

Standard Price per unit = 24.30

Material Price Variance = Actual Quantity 6800 (Standard Price 24.30 - Actual Price 23.80) = $3400 Favorable

Material Quantity/Efficiency/Usage Variance

Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:

Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)

Note --- Here actual quantity means actual quantity of material CONSUMED/USED

Actual Quantity Used in production = 6,800 Yards

Standard Quantity for Actual Production = Actual Produced Units 2,100 Sets x 3 yards material per set as per standard = 6300 Yards

Material Quantity Variance = Standard Price $24.30 (Standard Quantity for Actual Production 6300 – Actual Quantity USED 6800)

= $12,150 Unfavorable

2)

Labor Rate/Price Variance

Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:

Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)

Here, actual time means time for which wage has been paid.

Actual Rate per hour = $5.20

Actual Hours worked = 1,000 hours

Standard Rate = $5 per hour

Labor Rate Variance = Actual Time 1,000 (Standard Rate per hour $5 – Actual Rate per hour $5.20)

= $200 Unfavorable

Labor Efficiency / Usage Variance

Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.

Standard Hours for Actual Production = Actual Produced Units 2,100 Sets x Per Set allowed standard hour (1,055 / 2,110 set)

= 1,050 Hours

Labor Efficiency Variance = Standard Rate $5 (Std. hours for actual production 1,050 – Actual Hours 1,000)

= $250 Favorable

c)

Variable Overhead Rate Variance = Actual Hours (Std. Rate – Actual Rate)

= 1,000 (2.3 – 2.60)

= $300 Unfavorable

Variable Efficiency Variance = Standard Rate (Std Hours for actual production – Actual Hours)

= 2.3 (1050 - 1000)

= $115 Favorable

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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