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 .50 per micron.
Direct labor: 1.3 hours per toy at per hour.
During July, 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 .
(a) Compute the following variances for July: (i) Direct materials price and quantity variances. (ii) Direct labor rate and efficiency variances.

Answer 1

Direct material price is the cost of the raw materials and components used to create a product. The materials must be easily identifiable with the resulting product otherwise they are considered to be joint costs.

A Consider the data provided to compute the price and quantity variances for

direct materials in the following manner:

Standard price = $1.50 per micron

Standard quantity = 3,000 toys x 6 microns =18,000

Actual price = $1.48 per micron

Actual quantity = 25,000 microns

Actual quantity used = (25.000-5.000) microns = 20,000 microns

   Direct materials price variance

Actual quantity « (Standard price — Actual price)

25,000 microns x($1.50-$1.48)

$500 (Favorable)

Direct materials quantity variance = Standard price » (Standard quantity — Actual quantity)

$1.50x(18,000-20,000 microns)

-$3,000( Unfavorable)

Therefore, the price and quantity variances for direct materials is 500(Favorable),

and $3,000(Unfavorable) respectively.

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