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:

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:

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.)

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

Explanation / Answer

1. Direct material:

workings:

Direct labor variances:

workings:

standard hours per unit= budgeted labor hours/budgeted production= 990/1980= 0.5

Variable overhead variances:

workings:

Standard quantity Standard rate Standard cost Actual quantity used Actual rate Actual cost SQ SP SC AQ AP AC a b c=a*b d e f=d*e 8,250.00 7.00 57,750.00 10,000.00 5.6 56,000.00 Total material cost/spending variance SQ*SP - AQ*AP 57750-56000 1750 1750 F Material price variance AQ*(SP-AP) 10000*(7-5.6) 14000 14000 F Material usage/quantity variance SP*(SQ-AQ) 7*(8250-10000) -12250 12250 U

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