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 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 $ 45,738 $ 23.10 Direct labor $ 6,930 3.50 Variable manufacturing overhead (based on direct labor-hours) $ 3,168 1.60 $ 28.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (10,000 yards) $ 56,000 $ 22.40 Direct labor $ 9,250 3.70 Variable manufacturing overhead $ 4,500 1.80 $ 27.90 At standard, each set of covers should require 3.3 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.)

Explanation / Answer

1. Computation of materials variances

Materials price variances = (Standard Price - Actual Price) x Actual quantity
= {($23.10/3.30) - ($56,000/10,000)} x 10,000
= ($7.0 - $5.6) x 10,000
= $14,000 Favorable

Material quantity variance = (Standard Quantity - Actual quantity) x Standard Price
= {(3.3 x2500) -  10,000) x $7.0
= (8,250 - 10,000) x $7.0
= $12,250 Unfavorable

2. Computation of Labor variances

Labor rate variances = (Standard rate - Actual rate) x Actual hours
= {($6,930/990) - ($9,250/1,000)} x 1,000
= ($7.0 - $9.25) x 1,000
= $2,250 Unfavorable

Labor efficiency variance = (Standard hours - Actual hours) x Standard rate
= {(990/1980x2,500) - 1,000) x $7.0
= (1,250 - 1,000) x $7.0
= $1,750 Favorable

3. Computation of Variable overhead variances

Variable overhead rate variances = (Standard rate - Actual rate) x Actual hours
= {($3,168/990) - ($4,500/1,000)} x 1,000
= ($3.2 - $4.5) x 1,000
= $1,300 Unfavorable

Variable overhead variance = (Standard hours - Actual hours) x Standard rate
= {(990/1980x2,500) - 1,000) x $3.2
= (1,250 - 1,000) x $3.2
= $800 Favorable

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