Dawson Toys, Ltd., produces a toy called the Maze. The company has recently esta
ID: 2444755 • Letter: D
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: 8 microns per toy at $0.32 per micron Direct labor: 1 .3 hours per toy at $7.20 per hour During July, the company produced 5,000 Maze toys. Production data for the month on the toy follow: Direct materials: 79,000 microns were purchased at a cost of $0.30 per micron. 29,000 of these microns were still in inventory at the end of the month. Direct labor: 7,000 direct labor-hours were worked at a cost of $53,900. Required: 1. Compute the following variances for July: (Indicate the effect of each variance by selecting P for favorable, U for unfavorable, and None TM for no effect (i.e., zero variance). Do not round intermediate calculations. Round final answer to the nearest whole dollar.) a. The materials price and quantity variances. Material price variance Material quantity variance b. The labor rate and efficiency variances. Labor rate variance Labor efficiency varianceExplanation / Answer
(a)
Material price variance = ( Actual price-Standard price) x Actual quantity consumed
= ( $0.30 - $0.32 ) x 50000 units
= $0.02 x 50000 units
= $1000 F ( favourable variance since the actual price is low than standard price)
50000 units consumed = 79000 units purchased- 29000 units closing stock
Material quantity variance = ( Actual quantity consumed -Standard quantity consumed ) x Standard price
= ( 50000 units - 8 microns x 5000 maze toys) x $0.32 / unit.
= ( 50000-40000) x $0.32
= 10000 x $0.32
= $3200 U (unfavourable since actual consumption is higher than standard)
b)
Labour rate variance = (Actual rate - Standard rate ) x Actual labour hours
= ( $7.20 - $7.7) x 7000 labour hours
= $0.5 x 7000 hours
= $3500 F ( favourable since actual rate is less than standard rate )
( $7.7 is arrived at by dividing the actual labour cost of $53900/7000 hours )
Labour efficiency variance = ( Actual hours -Standard hours) x Standard rate
= ( 7000 - 1.3 hour/toy x 5000 toys) x $7.2 /hour
= ( 7000 - 6500 ) hours x $7.20 / hour
= 500 x $7.20 /hour
= $3600 U ( unfavourable variance since actual hours spent is more than standard hours)
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