Question

2. Dawson Toys, Ltd., produces a toy called the Maze. The company has recently created 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 $0.30 per micron

Direct labor: 1.1 hours per toy at $7.00 per hour

During July, the company produced 4,900 Maze toys. The toy's production data for the month are as follows:

Direct materials: 80,000 microns were purchased at a cost of $0.28 per micron. 37,125 of these microns were still in inventory at the end of the month.

Direct labor: 5,890 direct labor-hours were worked at a cost of $43,586.

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 answers to the nearest whole dollar amount.)

a. The materials price and quantity variances.

b. The labor rate and efficiency variances.

1a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency variance

Answer 1

a.
Material price variance	(Actual rate - Standard rate)*Actual quantity of units used
Material price variance	(0.28-0.30)*(80000-37125)
Material price variance	$857	F
The actual rate is lower than budgeted rate and thus variance is favorable
Material quantity variance	(Actual quantity - Budgeted quantity)*Standard rate
Material quantity variance	(42875-(7*4900))*0.30
Material quantity variance	(42875-34300)*0.30
Material quantity variance	$2,573	U
b.
Direct labor rate variance	(Actual rate - Standard rate)*Actual labor hours used
Actual rate	7.40	43586/5890
Direct labor rate variance	(7.40-7)*5890
Direct labor rate variance	$2,356	U
Direct labor efficiency variance	(Actual hours used - Standard hours used)*Standard rate
Direct labor efficiency variance	(5890-(1.1*4900))*7
Direct labor efficiency variance	(5890-5390)*7
Direct labor efficiency variance	$3,500	U