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 $0.32 per micron Direct labor: 1.4 hours per toy at $7.30 per hour During July, the company produced 5,300 Maze toys. The toy's production data for the month are as follows: Direct materials: 71,000 microns were purchased at a cost of $0.29 per micron. 24,625 of these microns were still in inventory at the end of the month. Direct labor: 7,920 direct labor-hours were worked at a cost of $62,568. 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

Calculation of material variances

71,000 microns were purchased and 24,625 of these microns were still in inventory at the end of the month.

Hence, material consumed = 71,000 - 24,625

= 46,375 microns

Standard quantity = 7 microns per toy

Actual production = 5,300 toys

Hence, standard quantity for 5,300 toys = 5,300 x 7

= 37,100 microns

	Standard quantity	Standard price	Actual quantity	Actual price
Direct material	37,100	$0.32	46,375	$0.29

Direct material price variance = Actual quantity x (Standard price - Actual price)

= 46,375 x (0.32 - 0.29)

= $1,391.25 F

Direct material quantity variance = Standard price x (Standard quantity - Actual quantity)

= 0.32 x (37,100 - 46,375)

= $2,968 U

Calculation of labor cost variances

Direct labor: 1.4 hours per toy at $7.30 per hour

Hence, standard hours for 5,300 toys = 5,300 x 1.4

= 7,420

Actual direct labor cost = $62,568

Actual direct labor hours = 7,920

Hence, actual rate = 62,568/7,920

= $7.9

	Standard hours	Standard rate	Actual hours	Actual rate
Direct labor	7,420	$7.30	7,920	$7.9

Direct labor rate variance = Actual time x (Standard rate - Actual rate)

= 7,920 x (7.30 - 7.9)

= $4,752 U

Direct labor efficiency variance = Standard rate x (Standard time - Actual time)

= 7.30 x (7,420 - 7,920)

= $3,650 U

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