Question

ch 8 exer #8

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 $0.34 per micron

Direct labor: 1.4 hours per toy at $7.20 per hour

During July, the company produced 4,600 Maze toys. Production data for the month on the toy follow:

Direct materials: 72,000 microns were purchased at a cost of $0.33 per micron. 31,750 of these microns were still in inventory at the end of the month.

Direct labor: 6,940 direct labor-hours were worked at a cost of $52,744.

Required:
1.	Compute the following variances for July: (Do not round intermediate calculations. Round final answer to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

a.

The materials price and quantity variances.

Material price variance		F
Material quantity variance		U

b.

The labor rate and efficiency variances.

Labor rate variance		U
Labor efficiency variance		U

Answer 1

Material Price Variance - ( Standard Unit cost - Actual Unit cost )* Actual quantity Purchased.

Material Quantity Variance - (Standard Quantity  - Actual Quantity) * Standard Price

Actual Micron Used : 72000-31750 i.e. 40250

Standard Micron reuired to produce 4600 Maze toys : 4600*7 = 32200

Actual rate per Micron = 0.33

Standard rate per Micron - $0.34

MPV = (0.34-0.33)*40250 = 402.50 (Favorable Variance)

MQV = (32200-40250)*0.34 = -2737 ( ( Unfavorable Variance)

Total Material Variance = 2335 U

Labour Rate Variance = ( Standard rate per hour - Actual rate per hour)* Actual No of hours worked

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

Actual rate per hour = 52744/6940 i.e.$ 7.60

Standard Hours = 4600*1.40 = 6440

LRV = (7.20-7.60)*6940 = 2776 UF

LEV = (6440 - 6940)*7.20 = 3600 UF

Labour Variance - 6376 UF