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 thefollowing standards for the Maze toy:
Direct materials: 6 microns per toy at $0.50 per micron
Direct labor: 1.3 hours per toy at $8 per hour
During Jul the company produced 3,000 Maze toys. Production data for the month on the toy follow:
Direct materials: 25,000 microns were purchased at a cost of $0.48 per micron. 5,000 of these microns were still in inventory at the end of the month.
Direct labor: 4,000 direct labor-hours were worked at a cost of $36,000.

Required:
1. Compute the following variances for July:
a. Direct materials price and quantity variances.
b. Direct labor rate and efficiency variances.
2. Prepare a brief explanation of the possible causes of each variance.

Answer 1

part a

Materials price variance 

=(Standard price - actual price) x Material purchased

=($0.50 - $0.48) x 25,000 

= $500 Favorable 

Materials quantity variance 

=(Standard quantity - actual quantity used) x standard price 

= {(3,000 x 6) - 20,000} x $0.50 

=(18,000- 20,000) x $0.50 

= $1,000 Unfavorable 

part b.

Labor rate variance 

= (Standard rate - actual rate) x Actual hours used 

= {($36,000 / 4,000) - 8} x 4,000 

=(9 - 8) x 4,000 

= $1,000 Favorable 

Labor efficiency variance 

= (Standard hours - actual hours) x Standard rate 

= {(3000 x 1.3) - 4,000} x $8 

= ( 3900- 4,000) x $8 

=$800 Unfavorable