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Marvel Parts, Inc
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 1,060 hours each month to produce 2,120 sets of covers. The standard costs associated with this level of production are:
TotalPer Set
of CoversDirect materials$43,460$20.50 Direct labor$9,540 4.50 Variable manufacturing overhead (based on direct labor-hours)$4,664 2.20 $27.20
During August, the factory worked only 500 direct labor-hours and produced 2,200 sets of covers. The following actual costs were recorded during the month:
TotalPer Set
of CoversDirect materials (8,000 yards)$44,000$20.00 Direct labor$10,340 4.70 Variable manufacturing overhead$5,500 2.50 $27.20
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.
(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 Solution
| 1) Computation of the materials price and quantity variances for August: |
| Direct Material Price Variance = (Standard Rate - Actual Rate) * Actual Quantity |
| = ( (20.50/2.50) - (44000/8000)) * 8000 |
| = 21,600 F |
| Direct Material Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Rate |
| = ( 2.50 * 2200 - 8000) * 8.20 |
| = 20,500 U |
| 2) Compute the labor rate and efficiency variances for August: |
| Direct Labor Rate Variance = (Standard Rate - Actual Rate) * Actual Hours |
| = [9,540/1060 - 20.68] * 500 |
| = 5,840 U |
| Actual labor Price Per hour = Total Cost / Total hours |
| = 10,340 / 500 |
| = 20.68 per hour |
| Direct Labor Efficiency Variance = (Standard Hours- Actual Hours) * Standard Rate |
| = [2200 * 0.5 - 500] * (9540/2120) |
| = 5,400 F |
| Standard Hour Per Unit = Standard Hours / Standard Output |
| = 1060/2120 |
| = 0.5 Hour |
| 3) Computation of the variable overhead rate and efficiency variances for August: |
| Variable Overhead Spending Variance = (Standard Rate - Actual Rate) * Actual Hours |
| = [4.40 -11.00 ] * 500 |
| = 3300 U |
| Standard Rate Per Hour = Standard Cost / Standard Hours |
| = 4664/1060 |
| = 4.4 Hour |
| Actual Overhead Per hour = Total Cost / Total hours |
| = 5500 / 500 |
| = 11.00 per hour |
| Variable Overhead Efficiency Variance = (Standard Hours- Actual Hours) * Standard Rate |
| = [2200 * 0.5 - 500] * 4.40 |
| = 2640 F |
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