Question

Townsend Toys, Ltd., produces a toy called the Puzzler. The company has recently established a standard cost system to help control costs and has established the following standards for the Puzzler toy:

Direct materials: 7 microns per toy at $0.31 per micron

Direct labor: 1.2 hours per toy at $6.90 per hour

During July, the company produced 5,100 Puzzler toys. The toy's production data for the month are as follows:

Direct materials: 78,000 microns were purchased at a cost of $0.30 per micron. 33,375 of these microns were still in inventory at the end of the month.

Direct labor: 6,620 direct labor-hours were worked at a cost of $48,988.

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

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

Material Price variance = 78,000 * ($0.30 - $0.31)

Material Price variance = $780 Favorable

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

Material Quantity variance = $0.31 * ((78,000-33,375) - (7*5,100))

Material Quantity variance = $2,767 Unfavorable

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

Labor rate variance = 6,620 * (($48,988/6,620) - $6.90)

Labor rate variance = $3,310 Unfavorable

Labor efficiency variance = Standard rate * (Actual Hours - Standard Hours)

Labor efficiency variance = $6.90 * (6,620 - (1.2*5,100))

Labor efficiency variance = $3,450 Unfavorable

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