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.)

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

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

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