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: 8 microns per toy at $0.33 per micron

Direct labor: 1.5 hours per toy at $6.50 per hour

During July, the company produced 5,000 Maze toys. The toy's production data for the month are as follows:

Direct materials: 78,000 microns were purchased at a cost of $0.31 per micron. 28,000 of these microns were still in inventory at the end of the month.

Direct labor: 8,100 direct labor-hours were worked at a cost of $57,510.

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

Solution:

(a)Material Price and quantity variance:

Material price variance

= (Standard price – Actual price) X Actual quantity*

= ($ 0.33- $ 0.31) X 50,000 microns

= $ 1,000 F (Answer)

*Actual quantity used = Material purchased – Material in Inventory

= 78,000 – 28,000 microns

= 50,000 microns

Material quantity variance

= (Standard quantity* – Actual quantity) X Standard price

= (40,000 – 50,000 microns) X $ 0.33

= $ 3,300 U (Answer)

*Standard quantity (for 5,000 toys)= 8 microns per toy X 5,000 toys = 40,000 microns

(b) Labor rate and efficiency variance:

Labor rate variance

= (Standard rate – Actual rate*) X Actual hours

= ($ 6.50 - $ 7.1) X 8,100

= $ 4,860 U (Answer)

* Actual rate = $57,510 / 8,100 hours = $ 7.1

Labor efficiency variance

= (Standard hour* – Actual hour) X Standard Rate

= (7,500 – 8,100 hours) X $ 6.50

= $ 3,900 U (Answer)

*Standard hours (for 5,000 toys) = 1.5 hours per toy X 5,000 toys = 7,500 hours