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 $0.34 per micron

Direct labor: 1.1 hours per toy at $6.70 per hour

During July, the company produced 5,100 Maze toys. Production data for the month on the toy follow:

Direct materials: 73,000 microns were purchased at a cost of $0.31 per micron. 28,375 of these microns were still in inventory at the end of the month.

Direct labor: 6,110 direct labor-hours were worked at a cost of $44,603.

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). Do not round intermediate calculations. Round final answer to the nearest whole dollar.)

a. The materials price and quantity variances.

b. The labor rate and efficiency variances.

Explanation / Answer

Answer for a)

Material price variance:

(Standard price-actual price)×actual quantity used

($0.34-$0.31)×(73000 microns-$28375)

=$1339 F

Material quantity variance:

(Standard quantity-actual quantity)×standard price per micron

((5100toys×7microns)-(73000microns-28375))×$0.34

=$3035 U

Answer for b)

Labour rate variance:

(Standard rate-actual rate)×actual hours

($6.70-($44603/6110 hours))×6110 hours

$3666 U

Labour efficiency variance:

(Standard hours-actual hours)×standard rate

((5100toys×1.1hours)-6110 hours)×$6.7

$3350 U

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