Question

Exercise 10-8 Direct Materials and Direct Labor Variances [LO10-1, LO10-2]

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: 1.4 hours per toy at $6.90 per hour

During July, the company produced 4,900 Maze toys. The toy's production data for the month are as follows:

Direct materials: 73,000 microns were purchased at a cost of $0.28 per micron. 30,125 of these microns were still in inventory at the end of the month.

Direct labor: 7,360 direct labor-hours were worked at a cost of $54,464.

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

Materials price variance = Actual quantity purchased * (Standard price - Actual price)

= 73,000 * ($0.30 - $0.28)

= $1,460 Favourable

Direct materials usage variance = Standard price * (Standard quantity - Actual quantity used)

= $0.30 * [(4,900*7) - (73,000 - 30,125)]

= $0.30 * (34,300 - 42,875)

= $2,573 Unfavourable.

Labour rate variance = Actual hours * (Standard rate - Actual rate)

= 7,360 * [$6.90 - ($54,464/7,360)]

= $3,680 Unfavourable

Labour efficiency variance = Standard rate * (Standard hours - Actual hours)

= $6.90 * [(4,900*1.4) - 7,360]

= $3,450 Unfavourable