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 $0.31 per micron

Direct labor: 1.5 hours per toy at $7.00 per hour

During July, the company produced 5,400 Maze toys. The toy's production data for the month are as follows:

Direct materials: 75,000 microns were purchased at a cost of $0.29 per micron. 27,750 of these microns were still in inventory at the end of the month.

Direct labor: 8,400 direct labor-hours were worked at a cost of $63,000.

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.

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

Answer 1

1a. Material Price Variance

Material Price Variance = (Actual Price p.u - Standard Price p.u)x Actual Quantity

= ($0.29 - $0.31) x 47,250 microns*

= $945 F (since actual price per unit is lower than standard price, it is a favourable variance)

* Actual Quantity = 75,000 microns Less closing inventory of 27,750 microns = 47,250 microns

Material Quantity Variance

Material Quantity Variance = (Standard Quantity - Actual Quantity) x Standard Price

= [(5,400 toys x 7 micron per toy) - 47,250 microns] x $0.31

= (37,800 microns - 47,250 microns) x $0.31

= 2,930 U ( since actual quantity used is more than standard quantity, it is an unfavourable variance )

1b. Labour Rate Variance

Labour Rate Variance = (Actual Rate - Standard Rate ) x Actual Hours

= [($63,000 / 8,400) - $7 per hour)] x 8,400 hours

= ( $7.5 - $7 ) x 8,400 hours

= 4,200 U (since actual rate per labour hour is more than standard rate per labour hour, the variance is unfavourable )

Labour Efficiency Variance

Labour Efficiency Variance = ( Actual Hours - Standard Hours ) x Standard Rate per hour

= [ 8,400 hours - (5,400 toys x 1.5 hour per toy)] x $7 per hour

= ( 8,400 hours - 8,100 hours ) x $7 per hour

= 2,100 U ( Since actual hours taken exceeds standard hours, the variance is unfavourable)