Dawson Toys, Ltd., produces a toy called the Maze. The company has recently esta

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: 6 microns per toy at $0.32 per micron

Direct labor: 1.4 hours per toy at $6.6 per hour

During July, the company produced 4,500 Maze toys. Production data for the month on the toy follow:


Direct materials: 73,000 microns were purchased at a cost of $0.29 per micron. 39,250 of these microns were still in inventory at the end of the month.


Direct labor: 6,600 direct labor-hours were worked at a cost of $45,540.
Compute the direct materials price and quantity variances for July. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect

Compute the direct labor rate and efficiency variances for July. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect

Explanation / Answer

Direct material price variance: Direct amterial price variance can be calculated as follows; Direct amterial price variance = (Actual price - Standard price) Actual quantity of material purchased.                                              = (0.29 - 0.32) 73,000                                              = (-0.03) 73,000 Direct material price variance = -2,190 Favorable. Direct material quantity variance: Direct material quantity variance = (Actual quantity used - Standard quantity) Standard price                                                  = (33,750 - (4,500 x 6)) 0.32                                                  = (33,750 - 27,000) 0.32                                                  = (6,750) 0.32 Direct material quantity variance = 2,160 Unfavorable. Direct material quantity variance = (Actual quantity used - Standard quantity) Standard price                                                  = (33,750 - (4,500 x 6)) 0.32                                                  = (33,750 - 27,000) 0.32                                                  = (6,750) 0.32 Direct material quantity variance = 2,160 Unfavorable. Direct labor rate variance: Direct laboe rate variance can be calculated as follows; Direct labor rate variance = (Actual rate - Standard rate) Actual hours worked                                        = (6.9 - 6.6) 6,600                                        = (0.3) 6,600 Direct labor rate variance = 1,980 Unfavorable. Direct labor efficiency variance = (Actual hours worked - Standard hours allowed) Standard rate                                                = (6,600 - (1.4 x 4,500)) 6.6                                                = (6,600 - 6,300) 6.6                                                = (300) 6.6 Direct labor efficiency variance = 1,980 Unfavorable. Direct laboe rate variance can be calculated as follows; Direct labor rate variance = (Actual rate - Standard rate) Actual hours worked                                        = (6.9 - 6.6) 6,600                                        = (0.3) 6,600 Direct labor rate variance = 1,980 Unfavorable. Direct labor efficiency variance = (Actual hours worked - Standard hours allowed) Standard rate                                                = (6,600 - (1.4 x 4,500)) 6.6                                                = (6,600 - 6,300) 6.6                                                = (300) 6.6 Direct labor efficiency variance = 1,980 Unfavorable.

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