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:

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.

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)
			5,000 yards × $7.80 per yard*			4,500 yards** × $7.80 per yard*
$34,200			= $39,000			= $35,100
	Materials price variance $4,800 F			Materials quantity variance, $3,900 U
		Spending Variance,$900 F

*$19.50 ÷ 2.50 yards = $7.80 per yard

**1,800 sets × 2.50 yards per set = 4,500 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)
			600 hours × $7.00 per hour*			900 hours** × $7.00 per hour*
$6,660			= $4,200			= $6,300
	Labor rate variance, $2,460 U			Labor efficiency variance, $2,100 F
		Spending Variance, $360 U

*1,040 standard hours ÷ 2,080 sets = 0.5 standard hour per set,

$3.50 standard cost per set ÷ 0.5 standard hours per set = $7 standard rate per hour.

**1,800 sets × 0.5 standard hours per set = 900 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)
			600 hours × $4.00 per hour*			900 hours** × $4.00 per hour*
$4,140			= $2,400			= $3,600
	Variable overhead rate variance, $1,740 U			Variable overhead efficiency variance, $1,200 F
		Spending Variance, $540 U

*$2.00 standard cost per set ÷ 0.50 standard hours per set = $4.00 standard rate per hour

Thanks