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: 7 microns per toy at $0.33 per micron Direct labor: 1.1 hours per toy at $7.30 per hour During July, the company produced 5,400 Maze toys. The toy's production data for the month are as follows: Direct materials: 74,000 microns were purchased at a cost of $0.31 per micron. 26,750 of these microns were still in inventory at the end of the month. Direct labor: 6,340 direct labor-hours were worked at a cost of $50,720.
Compute the following variance for july

a The materials price and quantity variances
b. The labor rate and efficiency variances

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Direct materials: 7 microns per toy at $0.33 per micron

Direct labor: 1.1 hours per toy at $7.30 per hour

The company produced 5,400 Maze toys.

Direct materials: 74,000 microns were purchased for $0.31 per micron.

Direct labor: 6,340 direct labor-hours were worked at a cost of $50,720.

A) To calculate the 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 - 0.31)*74,000= $1,480 favorable

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

Standard quantity= 5,400*7= 37,800

Actual quantity= 74,000 - 26,750= 47,250

Direct material quantity variance= (37,800 - 47250)*0.33= $3,118.5 unfavorable.

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

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

Standard quantity= 5,400*1.1= 5,940 hours

Direct labor time (efficiency) variance= (5,940 - 6,340)*7.3= $2,920 unfavorable

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

Direct labor rate variance= (7.3 - 50,720/6,340)*6,340

Direct labor rate variance= $4,430 unfavorable