Answered Essay: Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that ca

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 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are:

Total Per Set
of Covers
Direct materials $ 42,560 $ 22.40
Direct labor $ 51,300 27.00
Variable manufacturing overhead (based on direct labor-hours) $ 6,840 3.60
$ 53.00

During August, the factory worked only 2,800 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month:

Total Per Set
of Covers
Direct materials (12,000 yards) $ 45,600 $ 22.80
Direct labor $ 49,000 24.50
Variable manufacturing overhead $ 7,000 3.50
$ 50.80

At standard, each set of covers should require 5.6 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.)

Expert Answer

1. MATERIAL VARIANCE :

Material price variance = (standard price-actual price)actual qty

= (4-3.8)12000

Material price variance = 2400 F

Material quantity variance = (standard quantity-actual quantity)standard price

= (2000*5.6-12000)4

Material quantity variance = 3200 U

2. LABOUR VARIANCE :

Labour rate variance = (standard rate-actual rate)actual hours

= (18-17.5)2800

Labour rate variance = 1400 F

Labour efficiency variance = (standard hours-actual hours)standard rate

= (2000*1.5-2800)18

Labour efficiency variance = 3600 F

3. VARIABLE OVERHEAD VARIANCE :

Variable overhead rate variance = (standard rate-actual rate)actual hours

= (2.40-2.50)2800

Variable overhead rate variance = 280 U

Variable overhead efficiency variance = (standrd hours-actual hours)standrd rate

= (2000*1.5-2800) 2.4

Variable overhead efficiency variance = 480 F

Working note :

standard quantity per set is given in question 5.6 per yards

standard price per yard = 22.4/5.6 = 4

standard hours per set = 2850/1900 = 1.5 hour per set

standard rate per hour = 27/1.5 = 18 per hour

standard vriable overhead rate per hour = 3.6/1.5 = 2.4 per hour

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