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 $0.32 per micron Direct labor: 1.3 hours per toy at $6.80 per hour During July, the company produced 5,300 Maze toys. The toy's production data for the month are as follows: Direct materials: 76,000 microns were purchased at a cost of $0.30 per micron. 23,000 of these microns were still in inventory at the end of the month. Direct labor. 7,190 direct labor-hours were worked at a cost of $51,768. 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 (i.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. 1a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency variance

Answer 1

Solution

Material Price Variance	$           1,520.00	Favourable-F
Material quantity variance	$           3,392.00	Unfavourable-U

.

Labor rate variance	$           2,876.00	Unfavourable-U
Labor Efficiency variance	$           2,040.00	Unfavourable-U

Alternate answer for Material price variance

Material Price Variance

$           1,060.00

Favourable-F

Working

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    0.32	-	$                     0.30	)	x	76000
	1520
	Variance		$             1,520.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	42400	-	53000	)	x	$              0.32
	-3392
	Variance		$             3,392.00			Unfavourable-U

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    6.80	-	$                     7.20	)	x	7190
	-2876
	Variance		$             2,876.00			Unfavourable-U
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	6890	-	7190	)	x	$              6.80
	-2040
	Variance		$             2,040.00			Unfavourable-U

.

Standard DATA for		5300	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 8 microns x 5300 Units)=42400 microns	$                   0.32	$            13,568.00
Direct labor	( 1.3 Hour x 5300 Units)=6890 Hour	$                   6.80	$            46,852.00

.

Actual DATA for		5300	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	53000	$       0.30	$          15,900.00
Direct labor	7190	$       7.20	$          51,768.00