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: 6 microns per toy at $0.33 per micron

Direct labor: 1.2 hours per toy at $6.70 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. 35,500 of these microns were still in inventory at the end of the month.

Direct labor: 7,080 direct labor-hours were worked at a cost of $49,560.

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.

Material price variance _______ then, F, none, U _____

Material price quantity variance _______ then, F, none, U _____

Labor rate variance ______ then, F, none, U ______

Labor efficency variance ________ then, F, none, U ______

Answer 1

Requirement (a)

Actual quantity of material used (AQ) = 76000-35500 = 40,500 microns.

Standard quantity of material to be used (SQ) = 5400×6 = 32,400 microns

Material Price Variance = AQ×(AP-SP) = 40500×(0.30-0.33) = $1,215 F

Material Quantity Variance = (AQ-SQ)×SP = (40500-32400)×0.33 = $2,673 U

Requirement (b)

Labor rate Variance = Actual labor cost - (AH×SR) = 49560-(7080×6.70) = $2124 U

Standard labor hours (SH) = 5400×1.20 = 6,480 DLH

Labor efficiency variance = (AH-SH)×SR = (7080-6480)×6.70 = $4,020 U