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: 1.3 hours per toy at $6.90 per hour During July, the company produced 4,600 Maze toys. The toy's production data for the month are as follows: Direct materials: 77,000 microns were purchased at a cost of $0.30 per micron. 36,750 of these microns were still in inventory at the end of the month. Direct labor. 6,280 direct labor-hours were worked at a cost of $47,100. 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. Do not round intermediate calculations. Round final answer to the nearest whole dollar amount.) a. The materials price and quantity variances. b. The labor rate and efficiency variances. 1a. Material price variance 2 2,310 F Material quantity variance Labor rate variance Labor efficiency variance 1b.

Explanation / Answer

Answer

1a

Material Price Variance

Actual Price = $0.30 per micron

Standard Price = $0.33 per micron

Actual Quantity = 77,000 Microns

Material Price Variance = (Selling Price – Actual Price × Actual Quantity

= (0.33 – 0.30) * 77,000

Material Price Variance = 2,310 (Favorable)

Material Quantity Variance

Actual Material Used = Purchased – Closing Inventory

= 77,000 – 36,750

Actual Material Used = 40,250 Microns

Standard Material = Toys produced * Direct Material per toy

= 4,600 Toys * 7 Microns per toy

Standard Material = 32,200 Microns

Standard Price = $0.33 per micron

Material Quantity Variance = (Standard Quantity – Actual Quantity) * Standard Price

= (32,200 – 40,250) * $0.33

Material Quantity Variance = 2,656.5 (Unfavorable)

1b

Standard Rate = $6.9 per hour

Actual Rate = Total Actual Cost / Total Direct Labor Hours

= $47,100 / 6,280 hours

Actual Rate = $7.5 per hour

Actual Hours = 6,280 Hours

Labor Rate Variance = (Standard Rate – Actual Rate) × Actual Hours

= (6.9 – 7.5) * 6,280 hours

= (3,768)

Labor Rate Variance = 3,768 (Unfavorable)

Labor Efficiency Variance

Actual Hours = 6,280 Hours

Standard Hours = Toys Produced * 1.3 Hours per toy

= 4,600 Toys * 1.3 hours

Standard Hours = 5,980 Hours

Labor Efficiency Variance = Standard Rate * (Standard Hours – Actual Hours)

= 6.9 * (5,980 – 6,280)

= (2,070)

Labor Efficiency Variance = 2,070 (Unfavorable)

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