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: 8 microns per toy at $0.32 per micron

Direct labor: 1.5 hours per toy at $6.50 per hour

During July, the company produced 5,400 Maze toys. The toy's production data for the month are as follows:

Direct materials: 76,000 microns were purchased at a cost of $0.30 per micron. 22,000 of these microns were still in inventory at the end of the month.

Direct labor: 8,700 direct labor-hours were worked at a cost of $61,770.

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

1. a

Material Price Variance =(Standard price-actual price)*Actual Quantity

=(.32-.30)*7= $1520F

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

Actual Quantity used= 76000-22000 = 54000microns

Std quantity = 5400*8 = 43200 microns

Hnce, (54000-43200)*.32 = $3456 U

b.

Labor ratevariance = (Std rate-actual rate)*Actual hours worked

=(6.50-7.1)*8700 = $5220 U

Actual rate = 61770/8700 = $7.1

Labor efficiency variance = (Actual hours- Std hours)*Std rate

Std hours = 5400*1.5 = 8100 hours

Labor efficiency variance = (8700-8100)*6.5 = 3900U

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