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: 1.2 hours per toy at $7.20 per hour

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

Direct materials: 76,000 microns were purchased at a cost of $0.29 per micron. 33,125 of these microns were still in inventory at the end of the month.

Direct labor: 6,280 direct labor-hours were worked at a cost of $48,356.

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

1a. Materials price and quantity variances

Material price variance = (Actual price - Standard price) x Actual quantity purchased

=> Material price variance = ($0.29 per micron - $0.31 per micron) x 76,000 microns

=> Material price variance = $1,520 F

Material quantity variance = (Actual quantity used - Standard quantity of material for actual production) x Standard price

=> Material quantity variance = (42,875 microns - 34,300 microns) x $0.31 per micron

=> Material quantity variance = $2,658 U

Calculations:

1. Actual quantity used = Quantity purchased - Closing inventory of material

=> Actual quantity used = 76,000 microns - 33,125 microns = 42,875 microns

2. Standard quantity of material for actual production

= Standard material per toy x Actual number of toys produced

= 7 microns per toy x 4,900 toys = 34,300 microns

1b. Labor rate and efficiency variances

Labor rate variance = (Standard rate per hour - Actual rate per hour) x Actual hours worked

=> Labor rate variance = ($7.20 per hour - $7.70 per hour) x 6,280 hours

=> Labor rate variance = $3,140 U

Labor efficiency variance = (Standard hours for actual production - Actual hours worked) x Standard rate per hour

=> Labor efficiency variance = (5,880 hours - 6,280 hours) x $7.20 per hour

=> Labor efficiency variance = $2,880 U

Calculations:

1. Actual rate per hour = Actual labor cost / Actual hours worked

= $48,356 / 6,280 hours = $7.70 per hour

2. Standard hours for actual production

= Standard hours per toy x Actual number of toys produced

= 1.2 hours per toy x 4,900 toys = 5,880 hours