Question

Exercise 10-8 Direct Materials and Direct Labor Variances (LO10-1, LO10-2) 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: 8 microns per toy at $0.33 per micron Direct labor: 1.4 hours per toy at $6.60 per hour During July, the company produced 4,800 Maze toys. The toy's production data for the month are as follows: Direct materials. 72,000 microns were purchased at a cost of $0.30 per micron. 24,000 of these microns were still in inventory at the end of the month. Direct labor. 7,120 direct labor-hours were worked at a cost of $51,264 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 (.e., zero variance). Input all amounts as positive values. Do not round Intermediate calculations. Round final answer to the nearest whole dollar amount.) a. The materials price and quantity variances. b. The labor rate and efficiency variances, Prey 5 of 5 5 of 5

Answer 1

(A)

Material price variance = actual quantity purchased x (standard price - actual price)

= 72000 x ($0.33 - $0.30)

= $2160 Favorable

(B)

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

= $0.33 x (38400 - 48000)

= $3168 Unfavorable

Where,

actual quantity used = 72000 - 24000 = 48000

Standard quantity = actual output x standard quantity per unit of output

= 4800 x 8 = 38400 microns

(A)

Labor rate variance = actual hours x (standard rate - actual rate)

= 7120 x ($6.60 - $7.20)

= $4272 Unfavorable

Where,

Actual rate = actual labor cost/actual hours

= $51264/7120 = $7.2

(B)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $6.60 x (6720 - 7120)

= $2640 Unfavorable

Where,

Standard hours = actual output x standard hours per unit of output

= 4800 x 1.4 = 6720 hours