Question

Problem 10-9 Comprehensive Variance Analysis (LO10-1, LO10-2, LO10-3] 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 1,030 hours each month to produce 2,060 sets of covers. The standard costs associated with this level of production are: Per Set of Covers $19.00 4.50 Total $ 39,140 $ 9,270 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,502 1.70 $25.20 During August, the factory worked only 640 direct labor-hours and produced 1,600 sets of covers. The following actual costs were recorded during the month: Direct Direct materials (5,500 yards) Direct Labor Variable manufacturing overhead Total $ 29,920 $ 7,520 $ 4,000 Per Set of Covers $18.70 4.70 2.50 $25.90 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

Material Price Variance = (Standard Price – Actual Price)*Actual Quantity Purchased

= (19/2.5 – Actual Rate)*5,500

= 7.6*5500 – 29,920

= $11,880 Favorable

Material Quantity Variance = (Standard Quantity – Actual Quantity Used)*Standard Price

= (1,600*2.5 – 5500)*7.6

= $11,400 Unfavorable

Labor Rate Variance = (Standard Rate – Actual Rate)*Actual Hours

= (4.5*2 – Actual Rate)*640

=9*640 - 7520

= $1,760 Unfavorable

Efficiency Variance = (standard hours – actual hours)*Standard Rate

= (1600/2– 640)*9

= $1,440 favorable

Variable overhead rate variance = (Standard Rate – Actual Rate)*Actual Hours

= (3.4 – Actual Rate)*640

= $1,688 U

Efficiency Variance = (standard hours – actual hours)*Standard Rate

= (160)*3.4

= $544 F