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 uses a standard cost system 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.)

Answer 1

Answer:

The computation is given below:

Explanation:

According to the scenario, the computation of the given data are as follows:

1.

a) The formula for material price variance is as follows:

Material price variance = Actual quantity x Standard price - Actual quantity x Actual price

Where, Standard price = 42560 / (1900 × 5.6)  = $4/yard

Actual price = 45600 / 12000 = $3.8/yard  

By putting the value, we get

= 12000 x 4 - 12000 x 3.8  = $2400 (F)

b) The formula for material quantity variance is as follows:

Material quantity variance = (Standard Quantity allowed - Actual Quantity) x Standard price

= ((5.6 x 2000) - 12000) x 4

= (11200 - 12000) x 4  = $3200 (U)

2.

a)  The formula for labor rate variance is as follows:

Labor rate variance = Actual hours x (Standard rate - Actual rate)

Where, Standard rate = 51300 / 2850  = $18/hour

Actual rate = 49000/ 2800  = $17.5/hour

By putting the value, we get

= 2800 x (18 - 17.5)  = $1400 (F)

b) The formula for labor efficiency variance is as follows:

Labor efficiency variance = Standard rate x (Standard hours - Actual hours)

Where, Standard hour per unit = 2850 / 1900 = 1.50 / unit

Standard hours = 1.50 x 2000 = 3000 hours

By putting the value, we get

= 18 x (3000 - 2800)  = $3600 (F)

3.

a) The formula for  Variable overhead rate variance is as follows:

Variable overhead rate variance = Actual labor hours x (Standard rate - Actual rate)

Where, Standard rate = 6840 / 2850  = $2,40 / hour

Actual rate = 7000 / 2800  = $2.50 / hour

By putting the value, we get

= 2800 x (2.4 - 2.5)  = $280 (U)

b) The formula for  Variable overhead efficiency variance is as follows:

Variable overhead efficiency variance = Standard rate x (Standard hours - Actual hours)

= 2.40 x (3000 - 2800)  = $480 (F)