Exercise 8-17 Direct Materials and Direct Labor Variances [LO8-4, LO8-5] Dawson

Question

Exercise 8-17 Direct Materials and Direct Labor Variances [LO8-4, LO8-5]

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:

Compute the following variances for July: (Do not round intermediate calculations. Round final answer to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

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:

Explanation / Answer

Material Price variance

= (actual price - standard price) x actual quantity purchased

= ($0.28/micron - $0.32/micron) x 78000 microns

= $3120 Favourable

Standard usage of material for actual production = 5400 toys x 7 microns / toy =37800 microns

Actual usage = 78000 - 30750 = 47250 microns

Material Quantity Variance

= (actual usage - standard usage) x standard price

= (47250 - 37800) x $0.32

= $3024 Unfavourable

b)

Actual labour rate = $58838/8060 hours = $7.3 / hour

Labour rate variance

= (Actual rate - standard rate) x Actual labour hour used

= ($7.30/hr - $6.80/hr) x 8060 hours

= $4030 Unfavourable

Standard usage of labour for actual production = 5400 toys x 1.4 hrs/toy = 7560 hours

Labour efficiency variance

= (actual hours - standard hours) x Standard rate

= (8060 - 7560) x $6.80

= $3400 Unfavourable

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