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 1,040 hours each month to produce 2,080 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 40,560 $ 19.50 Direct labor $ 7,280 3.50 Variable manufacturing overhead (based on direct labor-hours) $ 4,160 2.00 $ 25.00 During August, the factory worked only 600 direct labor-hours and produced 1,800 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (5,000 yards) $ 34,200 $ 19.00 Direct labor $ 6,660 3.70 Variable manufacturing overhead $ 4,140 2.30 $ 25.00 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.

Answer 1

1. The materials price variance for the month of August is -$2,500, indicating a higher actual price per unit of material than the standard price. 2. The materials quantity variance for the month of August is $9,750, indicating that more material was used than the standard quantity allowed. 3. The labor rate variance for the month of August is $120, indicating a higher actual rate per hour than the standard rate.

Step-by-step explanation:

To compute the materials price variance, we compare the actual price per unit of material with the standard price per unit. The actual cost of materials is $34,200, and the actual quantity is 5,000 yards. The standard price per yard is $19.50. So, the materials price variance can be calculated as follows: Materials price variance = (Actual Quantity x Actual Price) - (Actual Quantity x Standard Price) = (5,000 x $19.00) - (5,000 x $19.50) = $95,000 - $97,500 = -$2,500

To compute the materials quantity variance, we compare the actual quantity of material used with the standard quantity allowed. The actual quantity is 5,000 yards, and the standard quantity should be 1,800 sets x 2.5 yards = 4,500 yards. So, the materials quantity variance can be calculated as follows: Materials quantity variance = (Actual Quantity - Standard Quantity) x Standard Price = (5,000 - 4,500) x $19.50 = 500 x $19.50 = $9,750

To compute the labor rate variance, we compare the actual rate per hour with the standard rate per hour. The actual cost of labor is $6,660, and the actual hours worked are 600. The standard rate per hour is $3.50. So, the labor rate variance can be calculated as follows: Labor rate variance = (Actual Hours x Actual Rate) - (Actual Hours x Standard Rate) = (600 x $3.70) - (600 x $3.50) = $2,220 - $2,100 = $120

To compute the labor efficiency variance, we compare the actual hours worked with the standard hours allowed. The actual hours worked are 600, and the standard hours allowed should be 1,800 sets x 1 hour per set = 1,800 hours. So, the labor efficiency variance can be calculated as follows: Labor efficiency variance = (Actual Hours - Standard Hours) x Standard Rate = (600 - 1,800) x $3.50 = -1,200 x $3.50 = -$4,200

To compute the variable overhead rate variance, we compare the actual rate per hour with the standard rate per hour. The actual variable overhead cost is $4,140, and the actual hours worked are 600. The standard rate per hour is $2.00. So, the variable overhead rate variance can be calculated as follows: Variable overhead rate variance = (Actual Hours x Actual Rate) - (Actual Hours x Standard Rate) = (600 x $2.30) - (600 x $2.00) = $1,380 - $1,200 = $180

To compute the variable overhead efficiency variance, we compare the actual hours worked with the standard hours allowed. The actual hours worked are 600, and the standard hours allowed should be 1,800 sets x 1 hour per set = 1,800 hours. So, the variable overhead efficiency variance can be calculated as follows: Variable overhead efficiency variance = (Actual Hours - Standard Hours) x Standard Rate = (600 - 1,800) x $2.00 = -1,200 x $2.00 = -$2,400