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: 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:
Compute the variances for July.

Answer 1

Answer and Explanation:

The computation of the variance is shown below;

a) Material price variance is

= (Standard price - actual price) × actual quantity

= ($1.5 - $1.48) × 25000

= $500 F

b. Material quantity variance is

= (Standard quantity - actual quantity) × Standard price

= (3000 × 6 - 20,000) × 1.5

= $3,000 U

c) Labor rate variance is

= (Standard rate - actual rate) × actual hours

= ($21 × 4000 - $88,000)

= $4,000 U

d. Labor efficiency variance is

= (Standard hour - actual hour) × Standard rate

= (3000 × 1.3 - 4000) × 21

= $2,100 U