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:

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:


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:
 

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

1.

Actual Quantity of Input, at Actual Price			Actual Quantity of Input, at Standard Price			Standard Quantity Allowed for Output, at Standard Price
(AQ × AP)			(AQ × SP)			(SQ × SP)
			9,100 yards × $7.40 per yard*			7,250 yards** × $7.40 per yard*
$52,780			= $67,340			= $53,650
	Materials price variance $14,560 F			Materials quantity variance, $13,690 U
		Spending Variance,$870 F

*$18.50 ÷ 2.50 yards = $7.40 per yard

**2,900 sets × 2.50 yards per set = 7,250 yards

2.

Many students will miss parts 2 and 3 because they will try to use product costs as if they were hourly costs. Pay particular attention to the computation of the standard direct labor time per unit and the standard direct labor rate per hour.

Actual Hours of Input, at the Actual Rate			Actual Hours of Input, at the Standard Rate			Standard Hours Allowed for Output, at the Standard Rate
(AH × AR)			(AH × SR)			(SH × SR)
			1,000 hours × $9.00 per hour*			1,450 hours** × $9.00 per hour*
$13,630			= $9,000			= $13,050
	Labor rate variance, $4,630 U			Labor efficiency variance, $4,050 F
		Spending Variance, $580 U

*1,020 standard hours ÷ 2,040 sets = 0.5 standard hour per set,

$4.50 standard cost per set ÷ 0.5 standard hours per set = $9 standard rate per hour.

**2,900 sets × 0.5 standard hours per set = 1,450 standard hours.

3.

Actual Hours of Input, at the Actual Rate			Actual Hours of Input, at the Standard Rate			Standard Hours Allowed for Output, at the Standard Rate
(AH × AR)			(AH × SR)			(SH × SR)
			1,000 hours × $2.40 per hour*			1,450 hours** × $2.40 per hour*
$4,640			= $2,400			= $3,480
	Variable overhead rate variance, $2,240 U			Variable overhead efficiency variance, $1,080 F
		Spending Variance, $1,160 U

*$1.20 standard cost per set ÷ 0.50 standard hours per set = $2.40 standard rate per hour

Thanks