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. Production data for the month on the toy follow:
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:
a. The materials price and quantity variances.
b. The labor rate and efficiency variances.
2. Prepare a brief explanation of the possible causes of each variance.

Answer 1

Answer:

a) 500F and 3,000U

the company use a cheaper material thus, favorable price variance.

But this material had lower quality thus, negative quantity variance

b) 4,000U   2,100U

There was overtime thus, making labor rate higher and productivity as the shift are longer, decrease.

It could also be a combination between wrong directives from the supervisor or defective equipment

Explanation:

DIRECT MATERIALS VARIANCES

$(standard\:cost-actual\:cost) \times actual \: quantity= DM \: price \: variance$

std cost         $ 1.50

actual cost      $ 1.48

quantity 25,000 (amount purchased)

difference  $0.02

price variance  $500.00

$(standard\:quantity-actual\:quantity) \times standard \: cost = DM \: quantity \: variance$

std quantity         18000 (3,000 toys produced x 6 per toy)

actual quantity 20000 (25,000 - 5,000 ending inventory)

std cost                    $1.50

difference      -2000.00

quantity variance  $(3,000.00)

DIRECT LABOR VARIANCES

$(standard\:rate-actual\:rate) \times actual \: hours = DL \: rate \: variance$

std rate          $21.00

actual rate  $22.00  (88,000 labor cost / 4,000 direct labor hours)

actual hours 4,000

difference  $(1.00)

rate variance  $(4,000.00)

$(standard\:hours-actual\:hours) \times standard \: rate = DL \: efficiency \: variance$

std  hours 3900.00 (3,000 toys x 1.3 hours per toy)

actual hours 4000.00

std rate            $21.00

difference   -100.00

efficiency variance  $(2,100.00)