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 $0.35 per micron

Direct labor: 1.2 hours per toy at $6.60 per hour

During July, the company produced 4,600 Maze toys. The toy's production data for the month are as follows:

Direct materials: 72,000 microns were purchased at a cost of $0.32 per micron. 31,750 of these microns were still in inventory at the end of the month.

Direct labor: 5,920 direct labor-hours were worked at a cost of $42,624.

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

a)

Material Price variance = Actual Quantity purchased* (Actual Price - Standard Price)

Material Price variance = 72,000 * ($0.32 - $0.35)

Material Price variance = $2,160 F

Material Quantity variance = Standard Price * (Actual Quantity used - Standard Quantity)

Material Quantity variance = $0.35 * ((72,000-31,750) - (4,600*7)

Material Quantity variance = $2,817.50 U

b)

Labour rate variance = (actual Rate - Standard Rate) * Actual Quantity

Labour rate variance = (($42,624/5,920) - $6.60) * 5,920

Labour rate variance = $3,552 U

Labour Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate

Labour Efficiency Variance = (5,920 - (4,600*1.2)) * $6.60

Labour Efficiency Variance = $2,640 U

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