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 50.33 per micron Direct labor 1.2 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: 74.000 microns were purchased at a cost of $0.20 per micron. 30.250 of these microns were still in inventory at the end of the month Direct labor: 6.500 direct labor-hours were worked at a cost of $49.400. 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 tie, zero variance 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 . The laborate and ecency variances Laborate varande Labor efficiency variance

Answer 1

Solution – 1a:

Standard rate of micron = $0.33

Actual rate of micron = $0.29

Standard Qty of micron for 5000 Maze = 5000*7 = 35000

Actual Qty of Micron consumed = 74000 – 30250 = 43,750

Material Price Variance = (SR – AR) * AQ = (0.33 – 0.29) * 43750 = $1,750 (F)

Material Qty Variance = (SQ – AQ) * SR = (35000 – 43750) * 0.33 = $2888 (U)

Solution – 1b:

Standard rate of direct labor = $7.20/hour

Standard hours for actual production = 5000 * 1.2 = 6000 Hrs

Actual Direct labor cost = $49400

Actual Direct labor hours = 6500

Actual rate of direct labor = 49400/6500 = 7.60/Hr

Labor rate variance = (SR – AR) * AH = (7.20 – 7.60) * 6500 = $2,600 (U)

Labor efficiency variance = (SH – AH) * SR = (6000 – 6500) * 7.20 = $3,600 (U)