PROBLEM 10-9 Comprehensive Variance Analysis LO10-1, LO10-2 LO10-3 Marvel Parts,

Question

PROBLEM 10-9 Comprehensive Variance Analysis LO10-1, LO10-2 LO10-3 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 uses a standard cost system 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 Per Set Total of Covers Direct materials Direct labor Variable manufacturing overhead $42,560 $22.40 $51,300 2700 based on direct labor-hours)$6,840 3.60 $53.00 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 Per Set Total of Covers Direct materials (12,000 yards) $45,600 $22.80 $49,000 24.50 Variable manufacturing overhead $7,000 3.50 $50.80 Direct labor 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: Compute the following variances for August 1. The materials price and quantity variances 2. The labor rate and efficiency variances 3 The variable overhead rate and efficiency variances

Explanation / Answer

1. Material variance :

Material price variance = (standard price-actual price)actual quantity

= (4*12000-45600)

Material price variance = 2400 Favourable

Material quantity variance = (standard quantity-actual quantity)standard price

= (2000*5.6-12000)4

Material quantity variance = 3200 Unfavourable

2) Labour variance :

Labour rate variance = (standard rate-actual rate)actual hours

= (18*2800-49000)

Labour rate variance = 1400 Favourable

Labour efficiency variance = (standard hours-actual hours)standard rate

= (2000*1.5-2800)18

Labour efficiency variance = 3600 Favourable

3) Variable overhead variance :

Variable overhead rate variance = (standard rate-actual rate)actual hours

= (2.4*2800-7000)

Variable overhead rate variance = 280 Unfavourable

Variable overhead efficiency variance = (standard hours-actual hours)standard rate

= (2000*1.5-2800)2.4

Variable overhead efficiency variance = 480 Favourable

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