Question

Dawson Toys, Ltd., produces a toy called the Maze. The company has recently created a standard cost system to help control costs and has established the following standards for the Maze toy:

Direct materials: 7 microns per toy at $0.33 per micron
Direct labor: 1.4 hours per toy at $6.70 per hour

During July, the company produced 5,000 Maze toys. The toy's production data for the month are as follows:

Direct materials: 70,000 microns were purchased at a cost of $0.29 per micron. 26,250 of these microns were still in inventory at the end of the month.
Direct labor: 7,500 direct labor-hours were worked at a cost of $54,750.

Required:
a. Compute the following variance for july
b. The materials price and quantity variances
c. The labor rate and efficiency variances

Answer 1

Results are below.

Step-by-step explanation:

To calculate the direct material price and quantity variance, we need to use the following formulas:

Direct material price variance= (standard price - actual price)*actual quantity

Direct material price variance= (0.33 - 0.29)*70,000

Direct material price variance= $2,800 favorable

Direct material quantity variance= (standard quantity - actual quantity)*standard price

Direct material quantity variance= (5,000*7 - 43,750)*0.33

Direct material quantity variance= $2,887.5 unfavorable

To calculate the direct labor rate and efficiency variance, we need to use the following formulas:

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

Direct labor rate variance= (6.7 - 7.3)*7,500

Direct labor rate variance= $4,500 unfavorable

Actual rate= 54,750 / 7,500= $7.3

Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate

Direct labor time (efficiency) variance= (5,000*1.4 - 7,500)*6.7

Direct labor time (efficiency) variance= $3,350 unfavorable