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 $0.33 per micron

Direct labor: 1.3 hours per toy at $6.90 per hour

During July, the company produced 4,600 Maze toys. The toy's production data for the month are as follows:

Direct materials: 76,000 microns were purchased at a cost of $0.31 per micron. 35,750 of these microns were still in inventory at the end of the month.

Direct labor: 6,480 direct labor-hours were worked at a cost of $46,656.

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

a) computation of material price and quantity variances

Actual quantity = 76000 microns

Actual price = $0.31 per micron

Standard quantity = (4600×7) 32200 microns

Standard price = $0.33 per micron

Material price variances = actual quantity×[standard price - actual price]

=. 76000×[$0.33 - $0.31]

= 76000×$0.02

=$1520 (favourable)

Material quantity variances = standard price [standard quantity- actual quantity]

=$0.33× [32200- 76000]

= $14454(unfavorable)

b) computing labour rate and efficiency variances

actual hours = 6480 labour hours

Actual rate =($46656/6480) = $7.2

standard hours =( 4600×1.3) 5980hours

standard rate = $6.90

Labour rate variances = Actual hours ×(standard rate - actual rate)

=6480×($6.90 - $7.2)

= 6480 × $0.3

=$1944 (unfavorable)

Labour efficiency variances = standard rate × (standard hours - actual hours)

$6.90×(5980 - 6480)

$6.90×500

= $3450(unfavorable)

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