## (Solution Download) Marvel Parts, Inc., manufactures auto accessories. One of the companyAc??cs products is a set of

 Marvel Parts, Inc., manufactures auto accessories. One of the companyAc??cs 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 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are:

 Total Per Set of Covers Direct materials \$ 45,738 \$ 23.10 Direct labor \$ 6,930 3.50 Variable manufacturing overhead       (based on direct labor-hours) \$ 3,168 1.60 \$ 28.20

 During August, the factory worked only 1,000 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 (10,000 yards) \$ 56,000 \$ 22.40 Direct labor \$ 9,250 3.70 Variable manufacturing overhead \$ 4,500 1.80 \$ 27.90

 At standard, each set of covers should require 3.30 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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your intermediate calculations to 2 decimal places. Round "Standard Price" and "Actual Price" answers to 2 decimal places.)

 2. Compute the labor 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). Round your intermediate calculations to 2 decimal places. Round "Standard Rate" and "Actual Rate" answers to 2 decimal places.)

 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). Round your intermediate calculations to 2 decimal places. Round "Standard Rate" and "Actual Rate" answers to 2 decimal places.)

1.

 Actual Quantity of Input, at Actual Price Actual Quantity of Input, at Standard Price Standard Quantity Allowed for Output, at Standard Price (AQ Af? AP) (AQ Af? SP) (SQ Af? SP) 12,500 yards Af? \$8.50 per yard* 7,500 yards** Af? \$8.50 per yards* \$58,750 = \$106,250 = \$63,750 Price Variance, \$47,500 F Quantity Variance, \$42,500 U Spending variance, \$5,000 F

 *\$23.80 Af· 3.00 yards = \$8.50 per yard **2,500 sets Af? 3.00 yards per set = 7,500 yards

 Alternatively, the variances can be computed using the formulas: Materials price variance = AQ (AP ? SP) 12,500 yards (\$4.70 per yard* ? \$8.50 per yard) = \$47,500 F *\$58,750 Af· 12,500 yards = \$4.70 per yard Materials quantity variance = SP (AQ ? SQ) \$8.50 per yard (12,500 yards ? 7,500 yards) = \$42,500 U

2.

 Many students will miss parts 2 and 3 because they will try to use product costs as if they were hourlycosts. 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 Af? AR) (AH Af? SR) (SH Af? SR) 800 hours Af? \$10.00 per hour* 1,250 hours** Af? \$10.00 per hour* \$13,000 = \$8,000 = \$12,500 Rate Variance, \$5,000 U Efficiency Variance, \$4,500 F Spending variance, \$500 U

 *1,075 standard hours Af· 2,150 sets = 0.5 standard hour per set, \$5.00 standard cost per set Af· 0.5 standard hours per set = \$10 standard rate per hour. **2,500 sets Af? 0.5 standard hours per set = 1,250 standard hours.

 Alternatively, the variances can be computed using the formulas: Labor rate variance = AH (AR ? SR) 800 hours (\$16.25 per hour* ? \$10.00 per hour) = \$5,000 U *\$13,000 Af· 800 hours = \$8.75 per hour Labor efficiency variance = SR (AH ? SH) \$10.00 per hour (800 hours ? 1,250 hours) = \$4,500 F

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 Af? AR) (AH Af? SR) (SH Af? SR) 800 hours Af? \$5.00 per hour* 1,250 hours Af? \$5.00 per hour* \$7,000 = \$4,000 = \$6,250 Rate Variance, \$3,000 U Efficiency Variance, \$2,250 F Spending variance, \$750 U

 *\$2.50 standard cost per set Af· .50 standard hours per set = \$5.00 standard rate per hour

 Alternatively, the variances can be computed using the formulas: Variable overhead rate variance = AH (AR ? SR) 800 hours (\$8.75 per hour* Ac??o \$5.00 per hour) = \$3,000 U *\$7,000 Af· 800 hours = \$16.25 per hour Variable overhead efficiency variance = SR (AH ? SH) \$5.00 per hour (800 hours Ac??o 1,250 hours) = \$2,250 F

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