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 $0.34 per micron

Direct labor: 1.2 hours per toy at $7.40 per hour

During July, the company produced 4,800 Maze toys. The toy's production data for the month are as follows:

Direct materials: 79,000 microns were purchased at a cost of $0.32 per micron. 37,000 of these microns were still in inventory at the end of the month.

Direct labor: 6,360 direct labor-hours were worked at a cost of $51,516.

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

1a           Direct Material Price Variance    = (Actual Quantity X Actual Price) - (Actual Quantity X Standard Price)

                                                                                = (79000 * 0.32) - (79000 * 0.34)

                                                                                = $1580 Favorable

Favorable because actual cost incurred is less than standard cost allowed

Direct Material Quantity Variance = (Actual Quantity X Standard Price) - (Standard Quantity X Standard Price)

                                                                    = (79000 * 0.34) – (33600 * 0.34)

                                                                    = $ 15436 Unfavorable

Actual Quantity at standard price is more than standard quantity at standard price. So unfavorable

Standard Quantity = 4800 toys * 7 microns per toy = 33600 microns

1b           Direct Labor Rate Variance = (Actual Hour X Actual Rate) – (Actual Hour X Standard Rate)

                                                        = $51516 - ( 6360 * $7.40)

                                                       =$ 4420 unfavorable

Unfavorable because actual cost incurred is more than standard cost allowed.

Direct Labor Efficiency Variance = (Actual Hour X Standard Rate) - (Standard Hour X Standard Rate)

                                                                = ( 6360 * $7.40) – (5760 * $7.40)

                                                                = $ 4440 unfavorable

Standard Hours = 4800 toys * 1.20 hours per toy = 5760 hours

Actual hours used are more than standard hours allowed. So unfavorable