Marvel Parts, Inc., manufactures auto accessories. One of the company’s products
ID: 2570749 • Letter: M
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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 39,798 $ 20.10 Direct labor $ 5,940 3.00 Variable manufacturing overhead (based on direct labor-hours) $ 3,168 1.60 $ 24.70 During August, the factory worked only 1,000 direct labor-hours and produced 2,200 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (7,400 yards) $ 40,700 $ 18.50 Direct labor $ 8,140 3.70 Variable manufacturing overhead $ 3,960 1.80 $ 24.00 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.
Explanation / Answer
Material price variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U Material price variance = (AP-SP)*AQ AP = Actual price per yard = $40,700 / 7,400 = $5.50 SP = Standard price per yard = $20.10 / 3 = 6.70 AQ = Actual quantity consumed= 7,400 F= Favourable U = Unfavourable Material price variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U $ 5.50 $ 6.70 1.2 7,400 8,880 F Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U Material quantity variance = (AQ-SQ)*SP AQ = Actual quantity consumed= 7,400 SQ = Standard quantity = 2200 * 3 = 6,600 SP = Standard price per yard = $20.10 / 3 = 6.70 F= Favourable U = Unfavourable Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U 7,400 6,600 -800 $ 6.70 -5,360 U Labor Rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U Labor Rate variance = (AR-SR)*AH AR = Actual Rate per hour = $8,140 / 1,000 = $8.14 SR = Standard Rate per hour = $5,940 / 990 = $6.00 AH = Actual hours = 1,000 F= Favourable U = Unfavourable Labor Rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U $ 8.14 $ 6.00 -2.14 1000 -2140 U Labor Efficiency variance AH (a) SH (b) Variance (c=b-a) AR (d) Total variance (e=c*d) F/U Labor Efficiency variance = (AH-SH)*AR AH = Actual hours = 1,000 SH = Standard Hours = 990 SR = Standard Rate per hour = $5,940 / 990 = $6.00 F= Favourable U = Unfavourable Labor Efficiency variance AH (a) SH (b) Variance (c=b-a) SR (d) Total variance (e=c*d) F/U 1,000 990 -10 $ 6.00 -60 U VOH spending (rate) variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U VOH spending variance = (AR-SR)*AH AR = Actual Rate per hour = $3,960 / 1,000 = $3.96 SR = Standard Rate per hour = $3,168 / 990 = $3.20 AH = Actual hours = 1,000 F= Favourable U = Unfavourable VOH spending (rate) variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U $ 3.96 $ 3.20 -0.76 1000 -760 U VOH efficiency variance AH (a) SH (b) Variance (c=b-a) SR (d) Total variance (e=c*d) F/U VOH efficiency variance = (AH-SH)*SR AH = Actual hours = 1,000 SH = Standard Hours = 990 SR = Standard Rate per hour = $3,168 / 990 = $3.20 F= Favourable U = Unfavourable VOH efficiency variance AH (a) SH (b) Variance (c=b-a) Price (d) Total variance (e=c*d) F/U 1,000 990 -10 $ 3.20 -32 U
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