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 $1.50 per micron Direct labor: 1.3 hours per toy at $21 per hour During July, the company produced 3,000 Maze toys. The toy's production data for the month are as follows: Direct materials: 25,000 microns were purchased at a cost of $1.48 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 $88,000. 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.) a. The materials price and quantity variances. b. The labor rate and efficiency variances.

Answer 1

Answer: 500F, 1000U, 4000U, 2100U

Explanation:

Given the following :

STANDARD PRODUCTION :

Direct materials = 6 microns per toy at $1.5 per micron

Direct labor = 1.3 hours at $21 per hour

JULY PRODUCTION :

Number of Maze toys produced = 3000

Direct materials = 25,000 microns at $1.48 per micron

5000 of of the microns were still in inventory at the end of the month

Direct labor = 4000 labor hours at $88000

A.) Material price variance for July

Variance = (Actual price - standard price) × actual quantity

=$(1.48 - 1.50) × 25,000

= - 0.02×25000 = - 500

=500F

Material quantity variance for july:

Actual quantity of material used (25,000 - 5,000) = 20,000

Standard quantity of material for the actual level of production = (3,000 toys x 6 microns per toy) = 18,000

Standard price per unit of material = $0.50

Therefore ;

Material quantity variance= (Actual quantity used - Standard quantity of material for actual level of production)

(20,000 - 18,000) × $0.50 = $1,000U

B.) Actual hours = 4000

Actual rate per hour = $88,000 ÷ 4000 = $22 per hour

Standard hour = 3000 × 1.3 = 3900

Standard rate = $21

Labor rate variance = [Actual rate - standard rate] × actual hour

[$22 - $21] × 4000 = $4000U

Labor efficiency variance :

[actual hour - standard hour] × standard rate

[4000 - 3900] × $21 = 100 ×$21 = 2100U