EXERCISE 10-8 Material and Labor Variances [L01, LO2] Topper Toys has developed

Question

 EXERCISE 10-8 Material and Labor Variances [L01, LO2]
 Topper Toys has developed a new toy called the Brainbuster. The company has a standard cost system to help control costs and has established the following standards for the Brainbuster toy:

 Direct materials: 8 diodes per toy at $0.30 per diode Direct labor: 0.6 hours per toy at $14.00 per hour

 During August, the company produced 5.000 Brainbuster toys. Production data on the toy for August follow:

 Direct materials: 70,000 diodes were purchased at a cost of $0.28 per diode. 20,000 of these diodes were still in inventory at the end of the month. Direct labor: 3,200 direct labor-hours were worked at a cost of $48,000. Required:

 1. Compute the following variances for August: a. Direct materials price and quantity variances. b. Direct labor rate and efficiency variances. 2. Prepare a brief explanation ol` the possible causes of each variance. 

Explanation / Answer

1. Compute the following variances for August: a. Direct materials price Variance = (SR-AR)*AQ = (0.30-0.28)*70000 = $1400 (F) and Direct materials quantity variances = (SQ-AQ)*SR = (40000-50000)*0.30 =$3000 (A) b. Direct labor rate variances = (SR-AR)*AH = (14- 15)*3200 = $3200(A) and Direct labor efficiency variances = (SH-AH)*SR = (3200-3000)*14 = $2800 (F) 2. Prepare a brief explanation ol` the possible causes of each variance. Direct Material price variance arise due to decrease in price per unit Direct materials quantity variances arises due to change in requirment as per standard Direct Labor Rate variance arise due to Increase in Labor Rate per hour Direct Labor Efficiency variances arises due to change in requirment as per standard

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