Marvel Parts, Inc., manufactures auto accessories. One of the company\'s product

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 beern 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 Per Set Direct materials Direct labor Variable manufacturing overhead (based Total of Covers $ 6,300 $ 3,150 $38,640 $18.40 3.00 1.50 $22.90 on direct labor-hours) 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 Per Set Total of Covers Direct materials (5,000 yards) Direct labor variable manu ac turing overhead $36,000 $18.00 3.20 2.20 $ 6,400 $ 4,400 $4 400 1 $23.40 At standard, each set of covers should require 2.3 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.) 1. Materials price variance Materials quantity variance 2. Labor rate variance

Explanation / Answer

1.

Material price variance = (SP-AP)*AQ

=($8 - $7.2)*2,000

=$1,600 F

Standard price = $18.40 / 2.3 yards = $8.

Actual price = $36,000 / 5,000 = $7.2

2.

Material quantity variance = (SQ - AQ)* SP

=(4,600 - 5,000)* $8

=$3,200 UF

Standard quantity = 2.3 yards * 2,000 seat covers = 4,600

3.

Labor rate variance = (SR-AR)*AH

=($10 -$12.8)*500

=$1,400 UF

Standard rate = ($3 / (630 /2,100)) = $10

Actual rate = $6,400 / 500 = $12.8

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