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 $0.30 per micron Direct labor: 1.3 hours per toy at $7.20 per hour During July, the company produced 5,200 Maze toys. The toy's production data for the month are as follows: Direct materials: 71,000 microns were purchased at a cost of $0.26 per micron. 32,000 of these microns were still in inventory at the end of the month. Direct labor: 7,160 direct labor-hours were worked at a cost of $55,132. Compute The materials price and quantity variances.

Explanation / Answer

Solution:

Total production of Maze Toys = 5200

Standard price of material (SP) = $0.30 per micron

Standard quantity of material (SQ) = 5200*6 = 31200 micron

Actual quantity of material consumed (AQ) = 71000 - 32000 = 39000 micron

Actual price of material (AP) = $0.26 per micron

Material price variance = (SP - AP) * Actual purchased quantity

= ($0.30 - $0.26) * 71000 = $2,840 F

Material Quantity variance = (SQ - AQ) * SP

= (31200 - 39000) * $0.30 = $2,340 U

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