1. Topper Toys has developed a new toy called the Brainbuster. The company has a
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Question
1. 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 pieces per toy at $0.30 per piece
Direct labor: 1.2 hours per toy at $7 per hour
During the month of August, the company produced 5,000 Brainbuster toys.
Production data for the month on the toy follow:
Direct materials: 50,000 pieces were purchased for use in production at a cost of $0.28 per piece.
Direct labor: 6,400 direct labor-hours were worked at a cost of $48,000.
Required: 1. Compute the following variances for the month
a. Direct materials price and quantity variances.
b. Direct labor price and quantity variances. 2.
Prepare a brief explanation of the significance and possible causes of each variance.
2. The Worldwide Credit Card Company uses standards to control the labor time involved in opening mail from card holders and recording the enclosed remittances. Incoming mail is gathered into batches, and a standard time is set of opening and recording each batch. The labor standards relating to one batch are given below:
The record showing the time spend last week in opening batches of mail has been misplaced. However, the batch supervisor recalls that 168 batches were received and opened during the week, and the controller recalls the following variance data relating to these batches:
Total labor variance................$330 Unfavorable
Labor price variance.................$150 Favorable
Required: 1. Determine the number of actual labor-hours spent opening batches during the week.
2. Determine the actual hourly rate paid to employees for opening batches last week.
Standar hours standard Rate Standard cost Per Batch 2.5 6$ 15$Explanation / Answer
Answer:
1a) Material Price Variance
= (Actual price – standard price) x actual purchase
= ($0.28/piece - $0.30/piece) x 50000 pieces
= $1000 F
Standard usage for actual production
= actual production x standard rate of usage of material
= 5000 toys x 8 pieces /toy
= 40000 pounds
Material Quantity Variance
= (actual usage – standard usage) x standard price
= (50000 pieces – 40000 pieces) x $0.30 / pieces
= $3000 U
b)
Actual labour hour rate = $48000 / 6400 = $7.50/hour
Labour rate variance
= (Actual labour rate – standard labour rate) x Actual usage of labour
= ( $7.50/hour - $7/hour) x 6400 hours
= $3200 U
Standard usage of labour
= actual production x standard labour hour per unit
= 5000 toys x 1.2 hours/toy
= 6000 hours
Labour efficiency variance
= (actual usage – standard usage) x standard rate
= (6400 hours – 6000 hours) x $1.20/hour
= $480 U
2)
Actual number of batches processed = 168
Standard hours per batch = 2.5 hours
Standard hours for actual batch = 168 x 2.5 = 420 hours
Total labour variance = $330 unfavourable
=> Labour efficiency variance = total labour variance – labour price variance = $330 U - $150F = -$330 - $150 = $480 U
Labour efficiency variance
= (actual usage – standard usage) x standard rate
=> (actual usage – 420hours) x $6/hour = $480
=> actual usage = 420 + (480/6) = 500 hours
Labour price variance
= (Actual labour rate – standard labour rate) x Actual usage of labour
= (actual labour rate - $6/hour) x 500 hours
=> (actual labour rate - $6/hour) x 500 hours = $150F
=> (actual labour rate - $6/hour) x 500 hours = -$150
=> actual labour rate = $6 - $(150/500) = $5.70/ hours
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