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: 1.5 hours per toy at $7.20 per hour During July, the company produced 5,000 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. 29,250 of these microns were still in inventory at the end of the month. Direct labor: 7,900 direct labor-hours were worked at a cost of $62,410 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. Material price variance Material quantity variance

Explanation / Answer

a. Material Price variance = (Standard price - actual price) x Actual quantity purchased
= ($0.33 - $0.31) x 73,000 = $14,600 Favorable

Material quantity variance = (Standard quantity - actual quantity) x Standard price
= {5,000 x 7 - (73,000 - 29,250)} x $0.33 = $2,888 Unfavorable

b. Labor rate variance = (Standard rate - actual rate) x actual hours
= {$7.20 - ($62,140/7,900)} x 7,900 = $5,260 Unfavorable

Labor efficiency variance = (Standard hours - Actual hours) x Standard rate
= {(5,000 x 1.5) - 7,900} x $7.20 = $2,880 Unfavorable     

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