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: 6 microns per toy at $0.33 per micron Direct labor: 1.4 hours per toy at $7.00 per hour During July, the company produced 5,200 Maze toys. Production data for the month on the toy follow: Direct materials: 70,000 microns were purchased at a cost of $0.29 per micron. 31,000 of these microns were still in inventory at the end of the month. Direct labor: 7,780 direct labor-hours were worked at a cost of $58,350. Required: 1. Compute the following variances for July: (Do not round intermediate calculations. Round final answer to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) a. The materials price and quantity variances. Material price variance Material quantity variance

Explanation / Answer

1a. Compute the direct materials price and quantity variances for July.

Given information;

Actual price is $0.29

Standard price 0.33

Actual quantity 70,000

Material price variance = (Actual price - Standard price) x Actual quantity

= ($0.29 - $0.33) x 70,000 = -2,800 Favorable

Material quantity variance:

Actual quantity of material used (70,000 - 31,000) = 39,000

Standard quantity of material for the actual level of production (5,200 toys x 6 microns pertoy) = 31,200 toys

Standard price per unit of material = $0.33

Mateial quantity variance :

= (Actual quantity used - Standard quantity of material for actual level of production) x Standard price

= (39,000 - 31,200) x $0.33

= $2,574 Unfavorable

1 b. The labor rate and efficiency variances

Actual Hours = 7,780

Standard Hours = 1.4 x 5,200 = 7,280 hours

Standard Rate = $7 per hour

Actual Rate = $58,350 / 7,780 = $7.5 per hour

Labor rate variance = Actual Hours x (Actual Rate - Standard Rate)

= 7,780 x ( $7.5 - $7 )

= $389 Unfavorable

Labor efficiency variance = Standard Rate x (Actual Hours -Standard Hours)

= $7 x ( 7,780 - 7,280 )

= $3,500 Unfavorable

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