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 1,230 hours each month to produce 2,050 sets of covers. The standard costs associated with this level of production are:

  

During August, the factory worked only 750 direct labor-hours and produced 1,500 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 1.80 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).)

2. Compute the labor rate and efficiency 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).)

3. Compute the variable overhead rate and efficiency 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).)

Total Per Set
of Covers Direct materials $ 27,675 $ 13.50 Direct labor $ 8,610 4.20 Variable manufacturing overhead
(based on direct labor-hours) $ 4,920 2.40 $ 20.10

Explanation / Answer

Question 1). Solution :- Standard price of material per yard = 27675 / (2050 * 1.80)

= 27675 / 3690

= $ 7.50.

Actual price of material per yard = 19500 / 3900

= $ 5.00.

Material Price Variance = Actual quantity of material purchased * (Standard price of material per yard - Actual price of material per yard.)

= 3900 * (7.50 - 5.00)

= 3900 * 2.50

= $ 9750 (Favourable).

Material quantity variance = Standard price of material per yard * (Standard quantity of material for the the production of actual output - Actual quantity of material used in the production of actual output.)

= 7.50 * [ (1.80 * 1500) - 3900 ]

= 7.50 * (2700 - 3900)

= $ 9000 (Unfavourable).

Conclusion :-

Question 2). Solution :- Standard labor rate per hour worked = 8610 / 1230

= $ 7

Actual labor rate per hour worked = 6600 / 750

= $ 8.80.

Labor rate variance = Actual Hours worked * (Standard labor rate per hour worked - Actual labor rate per hour worked)

= 750 * (7.00 - 8.80)

= $ 1350 (Unfavourable)

Labor efficiency variance = Standard labor rate per hour * (Standard hours worked for the production of actual output - Actual hours worked.)

= 7 * (900 - 750)

= 7 * 150

= $ 1050 (Favourable)

Note :- Standard hours worked for actual output = 1230 * 1500 / 2050

= 900.

Conclusion :-

Material price variance $ 9750 (Favourable). Material quantity variance $ 9000 (Unfavourable).

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