Question

Exercise 10-8 Direct Materials and Direct Labor Variances [LO10-1, LO10-2]

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 $0.30 per micron

Direct labor: 1.3 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: 71,000 microns were purchased at a cost of $0.28 per micron. 27,250 of these microns were still in inventory at the end of the month.

Direct labor: 6,900 direct labor-hours were worked at a cost of $48,300.

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

1	Actual rate	0.28	Per micron
	Direct material price variance =	(Standard rate - Actual rate) * Actual quantity
	Direct material price variance =	(.30-.28) * 43750
	Direct material price variance =	875	Favorable
2	Standard Material for actual production	5000*7	35,000	Micron
	Direct material quantity variance=	( Actual material - Standard material for acual production) *Standard rate
	Direct material quantity variance=	(43750-35000)* .30
		2625	UnFavorable
3	Actual rate	7.00	per hour
	Labor rate variance =	(Actual rate -Standard rate) * Actual hours
	Labor rate variance =	(7.0-6.5) * 6900
		3450	unFavorable
4	Standard labor hours for actual production	5000*1.3	6,500	Hours
	Labor Effeciency variance=	(Actual hours - Standard hours for acual production) *Standard rate
	Labor Effeciency variance=	(6900-6500)* 6.5
		2600	UnFavorable