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 630 hours each month to produce 2,100 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 38,640 $ 18.40 Direct labor $ 6,300 3.00 Variable manufacturing overhead (based on direct labor-hours) $ 3,150 1.50 $ 22.90 During August, the factory worked only 500 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (5,000 yards) $ 36,000 $ 18.00 Direct labor $ 6,400 3.20 Variable manufacturing overhead $ 4,400 2.20 $ 23.40 At standard, each set of covers should require 2.30 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. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Explanation / Answer

1.

Std price per yard=$38640/(2100×2.30 yards)

=$8 per yard

Actual price per yard=$36,000/5000 yards

=$7.20 per yard

Std quantity allowed=2000×2.30 yards

=4600 yards

Material price variance=AQ ( AP-SP)

=5000 yards($7.60 -$8.00)

=$2,000 F

Material quantity variance=SP×(AQ-SQ)

=$8.00×(5000-4600)

=$3,200 U

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