Question

Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: Direct materials: 7 microns per toy at $0.30 per micron Direct labor: 1.2 hours per toy at $6.70 per hour During July, the company produced 5,300 Maze toys. The toy's production data for the month are as follows: Direct materials: 77,000 microns were purchased at a cost of $0.28 per micron. 30,625 of these microns were still in inventory at the end of the month. Direct labor: 6,960 direct labor-hours were worked at a cost of $50,112. Required: 1. Compute the following variances for July: (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations. Round final answer to the nearest whole dollar amount.) a. The materials price and quantity variances. b. The labor rate and efficiency variances.

Answer 1

Solution – 1a:

Standard price of micron = $0.30

Actual rate of micron = $0.28

Standard Qty of micron for 5300 Maze = 5300*7 = 37100

Actual Qty of Micron consumed = 77000 – 30625 = 46375

Material Price Variance = (SP – AP) * AQ Purchased = (0.30 – 0.28) * 77000 = $1,540 F

Material Qty Variance = (SQ – AQ) * SR = (37100 – 46375) * 0.30 = $2,782.50 U

Solution – 1b:

Standard rate of direct labour = $6.70/hour

Standard hours for actual production = 5300 * 1.2 = 6360 Hrs

Actual Direct labor cost = $50,112

Actual Direct labor hours = 6960

Actual rate of direct labor = $50,112/6960 = $7.20 per hour

Labor rate variance = (SR – AR) * AH = (6.70 – 7.20) * 6960 = $3,480 U

Labor efficiency variance = (SH – AH) * SR = (6360 – 6960) * 6.70 = $4,020 U