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: 7 microns per toy at $0.33 per micron Direct labor: 1.2 hours per toy at $7.00 per hour During July, the company produced 5,500 Maze toys. Production data for the month on the toy follow: Direct materials: 74,000 microns were purchased at a cost of $0.29 per micron. 25,875 of these microns were still in inventory at the end of the month. Direct labor: 7,200 direct labor-hours were worked at a cost of $54,720.

Compute the following variances for July: The materials price and quantity variances.

The labor rate and efficiency variances.

Explanation / Answer

PRODUCTION IN JULY =5500 MAZE TOYS

STANDARD COST OF MATERIAL= 7*5500*$0.33=$12705,

STANDARD QUANTITY OF MATERIAL=7*5500=38500

ACTUAL COST OF MATERIAL=74000-25875*.29=$13956.25

MATERIAL PRICE VARRIANCE=STD COST-ACTUAL COST *ACTUAL QTY REQUIRED

= .33-.29*48125=1925 FAVOURABLE

QUANTITY VARRIANCE= STD QTY-ACTUAL QTY*STD COST

= 38500-48125*.33=3176.25 UFAVOURABLE

STANDARD COST OF DIRECT LABOUR HOUR= 1.2*5500*7=$46200

STANDARD LABOUR HOURS= 1.2*5500= 6600 HOURS

ACTUAL COST OF LABOUR= $54720

LABOUR RATE VARRIANCE= STD RATE- ACTUAL RATE*ACTUAL HOURS REQUIRED

=7-7.6*7200=4320 UNFAVOURABLE

LABOUR EFFICIANCY VARRIANCE=STD HOUR-ACTUAL HOUR*STD RATE/HOUR

6600-7200*7=4200 UNFAVOUABLE

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