20 Jan Labor efficiency variance

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 1,005 hours each month to produce 2,010 sets of covers. The standard costs associated with this level of production are:

Total

Per Set
of Covers

Direct materials

$

28,542

$

14.20

Direct labor

$

8,040

4.00

Variable manufacturing overhead
(based on direct labor-hours)

$

3,618

1.80

$

20.00

During August, the factory worked only 1,200 direct labor-hours and produced 2,600 sets of covers. The following actual costs were recorded during the month:

Total

Per Set
of Covers

Direct materials (6,000 yards)

$

35,100

$

13.50

Direct labor

$

10,920

4.20

Variable manufacturing overhead

$

5,460

2.10

$

19.80

At standard, each set of covers should require 2.00 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.(Input all amounts as positive values. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e, zero variance).)

Materials price variance

$7,500

F

Materials quantity variance

$5,680

U

2.

Compute the labor rate and efficiency variances for August.(Input all amounts as positive values. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e, zero variance).)

Labor rate variance

$1,320

U

Labor efficiency variance

$800

F

3.

Compute the variable overhead rate and efficiency variances for August.(Input all amounts as positive values. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e, zero variance).)

Variable overhead rate variance

$1,140

U

Variable overhead efficiency variance

$360

F

rev: 1

Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below:

Budgeted

Actual

Sales (5,000 pools)

$

235,000

$

235,000

Variable expenses:

Variable cost of goods sold*

71,350

86,370

Variable selling expenses

13,000

13,000

Total variable expenses

84,350

99,370

Contribution margin

150,650

135,630

Fixed expenses:

Manufacturing overhead

62,000

62,000

Selling and administrative

77,000

77,000

Total fixed expenses

139,000

139,000

Net operating income (loss)

$

11,650

$

(3,370)

*Contains direct materials, direct labor, and variable manufacturing overhead.

Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given instructions to “get things under control.” Upon reviewing the plant’s income statement, Ms. Dunn has concluded that the major problem lies in the variable cost of goods sold. She has been provided with the following standard cost per swimming pool:

Standard Quantity or Hours

Standard Price
or Rate

Standard Cost

Direct materials

3.8 pounds

$

2.20 per pound

$

8.36

Direct labor

0.7 hours

$

6.80 per hour

4.76

Variable manufacturing overhead

0.5 hours*

$

2.30 per hour

1.15

Total standard cost

$

14.27

*Based on machine-hours.

During June the plant produced 5,000 pools and incurred the following costs:

a.

Purchased 24,000 pounds of materials at a cost of $2.65 per pound.

b.

Used 18,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

c.

Worked 4,100 direct labor-hours at a cost of $6.50 per hour.

d.

Incurred variable manufacturing overhead cost totaling $7,560 for the month. A total of 2,800 machine-hours was recorded.

It is the company’s policy to close all variances to cost of goods sold on a monthly basis.

Required:

1.

Compute the following variances for June:

a.

Materials price and quantity variances.(Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

Material price variance

$10,800

U

Material quantity variance

$440

F

b.

Labor rate and efficiency variances.(Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

Labor rate variance

$1,230

F

Labor efficiency variance

$4,080

U

c.

Variable overhead rate and efficiency variances.(Do not round your intermediate calculations. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

Variable overhead rate variance

$1,120

U

Variable overhead efficiency variance

$690

U

2.

Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.(Input all values as positive amounts. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

Summary of variances:

Material price variance

10,800

U

Material quantity variance

440

F

Labor rate variance

1,230

F

Labor efficiency variance

4,080

U

Variable overhead rate variance

1,120

U

Variable overhead efficiency variance

690

U

Net variance

$15,020

U

3.

Pick out the two most significant variances that you computed in (1) above.(You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

Materials price variance

Labor efficiency variance

Variable overhead efficiency variance

Labor rate variance

Variable overhead rate variance

Materials quantity variance

03_2014_QC_57955, 03_24_2015_