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 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are:
Total Per Set of Covers
Direct materials $54,825 $25.50
Direct labor $10,750 5.00
Variable manufacturing overhead (based on direct labor-hours) $5,375 2.50
$33.00
During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month:
Total Per Set of Covers
Direct materials (12,500 yards) $58,750 $23.50
Direct labor $31 ,000 5.20
Variable manufacturing overhead $7,000 2.80
$31.50
At standard, each set of covers should require 3.0 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

Answer:

See the explanation below.

Explanation:

Given the following information:

The standard costs associated with this level of production are:  

                                                                           Total        Per Set of Covers

Direct materials                                                  $54,825           $25.50  

Direct labor $10,750 5.00  

Variable man o/h (based on direct labor-hrs) $5,375                 2.50

                                                                                                     $33.00

The following actual costs were recorded during the month:

                                                                      Total          Per Set of Covers

Direct materials (12,500 yards)                    $58,750            $23.50  

Direct labor                                                    $31,000                5.20  

Variable manufacturing overhead                $7,000                 2.80

                                                                                                  $31.50

1. Compute the materials price and quantity variances for August.

Actual unit of production = 2,500 units  

Actual material price per yard = $58,750 / 12,500 = $4.70  

Total standard quantity required = 2,500 * 3 = $7,500

Material required to produce 1 unit of cover is 3 yards  

Standard price per yard = $25.50 / 3 = $8.50 yard

Therefore, we have:

Material price variance = (Actual price per yard - Standard price per yard) * Actual yards  = ($4.70 - $8.50) * 12,500 = - $47,500 favorable

Material quantity variance = (Actual quantity - Standard quantity) * Standard price per yard =  (12,500 - 7,500) * $8.50 = $42,500 adverse

2. Compute the labor rate and efficiency variances for August.

Actual direct labor hours = 800 hours  

Actual price per direct labor hour = $31,000 / 800 = $38.75

Standard direct labor cost per hour = $10,750 / 1,075 = $10

Standard labor hours used = 2,500 * 0.50 = 1,250 hours

Labor price variance = (Actual price per labor hour - Standard price per labor hour) * actual labor hours  = ($38.75 - $10.00) * 800 = $23,000 adverse

Labor quantity variance = (actual labor hours - standard labor hours) * Standard price per labor hour = (800 - 1,250) * $10 = $4,500 favorable.

3. Compute the variable overhead rate and efficiency variances for August.

Budgeted variable manufacturing overhead cost = $5.00 per labor hour  

Actual labor hours = 800 hours

Standard labor hours = 2,500 * 0.50 = 1,250 hours  

Actual variable manufacturing costs = $7,000 / 800 =  $8.75 per labor hour

Variable overhead Rate variance = actual labor hours * (actual variable overhead rate per DLH x budgeted variable overhead rate per DLH)  = 800 * ($8.75 * $5.00) = $3,000 adverse

Variable overhead efficiency variance = budgeted variable overhead rate per DLH * (Actual labor hours - budgeted labor hours required) = $5.00 * (800 - 1,250) = - $2,250 favorable.