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 $0.32 per micron Direct labor: 1.1 hours per toy at $7.30 per hour During July, the company produced 5,100 Maze toys. Production data for the month on the toy follow Direct materials: 75,000 microns were purchased at a cost of $0.30 per micron. 30,375 of these microns were still in inventory at the end of the month. Direct labor: 6,210 direct labor-hours were worked at a cost of $47,196. 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 $ (1,500)F b. The labor rate and efficiency variances. Labor rate variance Labor efficiency variance

Explanation / Answer

Dawson Toys Ltd

1a. Computation of material price and quantity variances for July:

Material price variance = actual quantity x (actual price – standard price)

Actual quantity = 75,000 microns

Actual price = $0.30 per micron

Standard price = $0.32 per micron

Material price variance = 75,000 x ($0.30 - $0.32) = 75,000 x ($0.02)

Material price variance = $1,500 F

Material quantity variance = standard price x (actual quantity used - standard quantity for actual output)

Standard price = $0.32

Actual quantity used = 75,000 – 30,375 = 44,625 microns

Standard quantity of material for actual output = 7 microns x 5,100 toys = 35,700 microns

Material quantity variance = $0.32 x (44,625 – 35,700) = $2,856 UF

Material price variance                $1,500 F

Material quantity variance           $2,856 UF

1b. Labor rate and efficiency variances:

Labor rate variance = Actual hours x (Actual rate – standard rate)

Actual hours = 6,210

Actual rate = $47,196/6,210 = $7.60

Standard rate = $7.30

Labor rate variance = 6,210 x (7.60 – 7.30) = 6,210 x 0.30

Labor rate variance = $1,863 UF

Labor efficiency variance = Standard rate x (actual hours – standard hours for actual output)

Standard rate = $7.30

Actual hours = 6,210

Standard hours for actual output = 1.1 hours x 5,100 toys =5,610 hours

Labor efficiency variance = $7.30 x (6,210 – 5,610) = $4,380 UF

Labor rate variance                      $1,863UF

Labor efficiency variance                        $4,380 UF

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