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 1,045 hours each month to produce 2,090 sets of covers. The standard costs associated with this level of production are: Total Per Set of Covers Direct materials $ 49,533 $ 23.70 Direct labor $ 10,450 5.00 Variable manufacturing overhead (based on direct labor-hours) $ 4,598 2.20 $ 30.90 During August, the factory worked only 800 direct labor-hours and produced 1,900 sets of covers. The following actual costs were recorded during the month: Total Per Set of Covers Direct materials (6,500 yards) $ 44,460 $ 23.40 Direct labor $ 9,880 5.20 Variable manufacturing overhead $ 4,560 2.40 $ 31.00 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.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

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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 1,045 hours each month to produce 2,090 sets of covers. The standard costs associated with this level of production are:

	Total	Per Set of Covers
Direct materials	$	49,533	$	23.70
Direct labor	$	10,450		5.00
Variable manufacturing overhead (based on direct labor-hours)	$	4,598		2.20
			$	30.90

During August, the factory worked only 800 direct labor-hours and produced 1,900 sets of covers. The following actual costs were recorded during the month:

	Total	Per Set of Covers
Direct materials (6,500 yards)	$	44,460	$	23.40
Direct labor	$	9,880		5.20
Variable manufacturing overhead	$	4,560		2.40
			$	31.00

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.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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