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: 7 microns per toy at $0.35 per micron

Direct labor: 1.3 hours per toy at $6.70 per hour

During July, the company produced 5,300 Maze toys. Production data for the month on the toy follow:

Direct materials: 76,000 microns were purchased at a cost of $0.34 per micron. 29,625 of these microns were still in inventory at the end of the month.

Direct labor: 7,190 direct labor-hours were worked at a cost of $50,330.

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). Do not round intermediate calculations. Round final answer to the nearest whole dollar.)

a.	The materials price and quantity variances.

         

b.	The labor rate and efficiency variances.

         

Answer 1

a.

Direct material price variance = (standard price - actual price)* actual quantity

here,

standard price =$0.35 per micron

actual price =$0.34 per micron

actual quantity = 76,000 purchased - 29,625 in inventory at end of month

=>46,375 microns.

direct material price variance = ($0.35-0.34)*46,375.

=>$464 F....(favorable since actual price is lower).

Direct material quantity variance = (standard quantity - actual quantity) * standard price.

standard quantity =7 microns *5300 toys =>37,100.

actual quantity = 46,375 microns (as calculated above).

standard price = $0.35.

direct material quantity variance = (37,100-46,375)* $0.35

=>9,275 * $0.35

=>$3,246.U...(unfavorable since actual quantity is more).

b. The labor rate variance = (standard rate - actual rate)* actual hours

here,

Standard rate =$6.70 per hour

actual rate = $50,330 actual cost /7190 actual direct labor hours

=>$7.00 per hour

actual hours =7,190 direct labor hours.

direct labor rate variance = (6.70-7.00)*7190

=>$2,157 U....(unfavorable since actual rate is high).

Direct labor efficiency variance = (standard hours - actual hours)* standard rate.

standard hours = 1.3 hours *5300 toys=>6,890 hours.

actual hours = 7190 hours

(6890 hours -7190 hours)*$6.70 per hour

=>$2,010 U (unfavorable since actual hours are higher).