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

The materials price variance for August is $2,500 and the materials quantity variance is -$280,625.

Step-by-step explanation:

To calculate the materials price variance, we need to compare the actual cost of materials with the standard cost of materials. The materials price variance measures the difference between the actual price paid for materials and the standard price per unit of materials. It can be calculated using the formula:

Materials Price Variance = (Standard Price - Actual Price) * Actual Quantity

In this case, the standard price per set of covers is $25.50 and the actual price per set of covers is $23.50. The actual quantity is 12,500 yards. Therefore, the materials price variance is:

Materials Price Variance = ($25.50 - $23.50) * 12,500 = $2,500

To calculate the materials quantity variance, we need to compare the actual quantity of materials used with the standard quantity of materials. The materials quantity variance measures the difference between the actual quantity of materials used and the standard quantity of materials. It can be calculated using the formula:

Materials Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Price

In this case, the standard quantity of materials per set of covers is 3.0 yards and the actual quantity of materials used is 12,500 yards. Therefore, the materials quantity variance is:

Materials Quantity Variance = (3.0 - 12,500) * $25.50 = -$280,625

The negative value indicates that more materials were used than expected, resulting in an unfavorable variance.