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

Question

4 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 $1.50 per micron 10 points Direct labor: 1.3 hours per toy at $21 per hour During July, the company produced 3,000 Maze toys. The toy's production data for the month are as follows: Direct materials 25,000 microns were purchased at a cost of $1.48 per micron. 5,000 of these microns were still in inventory at the eBook Print end of the month. ReferencesDirect labor 4,000 direct labor-hours were worked at a cost of $88,000. Required: 1. Compute the following variances for July: (Indicate the effect of each variance by selecting "F for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) a. The materials price and quantity variances b. The labor rate and efficiency variances a Material price variance Material quantity variance b. Labor rate variance Labor efficiency variance

Explanation / Answer

Solution 1a:

Standard quantity of material for actual production = 3000 * 6 = 18000 micron

Standard price of material = $1.50 per micron

Actual quantity of material purchased = 25000 micron

Actual quanity of material consumed (AQ) = 25000 - 5000 = 20000 micron

Actual price of direct material = $1.48 per micron

Material price variance = (SP - AP) * AQ Purchased

= ($1.50 - $1.48) * 25000 = $500 F

Material quantity variance = (SQ - AQ) * SP

= (18000 - 20000) * $1.50 = $3000 U

Solution 1b:

Standard hours of direct labor for actual production = 3000 * 1.30 = 3900 hours

Standard rate of direct labor = $21 per hour

Actual hours of direct labor = 4000 hours

Actual rate of direct labor = $88,000 / 4000 = $22 per hour

Direct labor rate variance = (SR - AR) * AH = ($21 - $22) * 4000 = $4,000U

Direct labor efficiency variance = (SH - AH) * SR = (3900 - 4000) * $21 = $2,100 U

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