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 been set for the seat covers, the factory should work 1,020 hours each month to produce 2,040 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 $ 9,180 $ 2,448 37,740 $18.50 4.50 on direct labor-hours) 1.20 $24.20 During August, the factory worked only 1,000 direct labor-hours and produced 2,900 sets of covers. The following actual costs were recorded during the month Per Set Total of Covers Direct materials (9,100 yards) Direct labor Variable manufacturing overhead $52,780 $18.20 4.70 1.60 $24.50 13,630 $ 4,640 At standard, each set of covers should require 2.5 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.

Explanation / Answer

1 Material price variance=Actual material consumed*(Standard price-Actual price) Material price variance=9100*(18.50-18.20)=2730 F Material quantity variance=(Standard material required-Actual material consumed)*Standard price Standard material required=Actual production*Standard material per unit=2900*2.5=7250 yards Material quantity variance=(7250-9100)*18.50=34225 U 2 Labor rate variance=Actual hours*(Standard rate-Actual rate) Standard rate=standard Direct labor cost/Standard hours=9180/1020=$9 per hour Actual rate=Actual Direct labor cost/Actual hours=13630/1000=$13.63 per hour Labor rate variance=1000*(9-13.63)=4630 U Labor efficiency variance=(Standard hours required-Actual hours)*Standard rate Standard hours required=Actual production*Standard hours per set of covers Standard hours per set of covers=Budgeted hours/Budgeted production=1020/2040=0.5 hours Standard hours required=2900*0.5=1450 hours Labor efficiency variance=(1450-1000)*9=4050 F 3 Variable rate variance=Actual hours*(Standard rate-Actual rate) Standard rate=Standard variable manufacturing cost/Standard hours=2448/1020=2.4 per hour Actual rate=Actual variable manufacturing cost/Actual hours=4640/1000=4.64 Variable rate variance=1000*(2.4-4.64)=2240 U Variable overhead efficiency variance=(Standard hours required-Actual hours)*Standard rate Standard hours required=Actual production*Standard hours per set of covers Standard hours required=2900*0.5=1450 hours Labor efficiency variance=(1450-1000)*2.40=1080 U

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