Question

Exercise 10-8 Direct Materials and Direct Labor Variances [LO10-1, LO10-2] 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: 8 microns per toy at $0.30 per micron Direct labor: 1.2 hours per toy at $6.50 per hour During July, the company produced 5,000 Maze toys. The toy's production data for the month are as follows: Direct materials: 78.000 microns were purchased at a cost of $0.29 per micron. 28,000 of these microns were still in inventory at the end of the month. Direct labor. 6.500 direct labor-hours were worked at a cost of $44.850. Required: 1. Compute the following variances for July: (Indicate the effe ct of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance). Input all amounts as positive values. Do not round Intermedlate calculations. Round final answer to the nearest whole dollar amount.) a. The materials price and quantity variances. b. The labor rate and efficiency variances. Material price variance 1a. Material quantity variance 1b. Labor rate variance Labor efficiency variance

Answer 1

Solution – 1a:

Standard rate of micron = $0.30

Actual rate of micron = $0.29

Standard Qty of micron for 5000 Maze = 5000*8 = 40000

Actual Qty of Micron consumed = 78000 – 28000= 50000

Material Price Variance = (SR – AR) * AQ = (0.30 – 0.29) * 50000 = $500 (F)

Material Qty Variance = (SQ – AQ) * SR = (40000 – 50000) * 0.30 = $3,000 (U)

Solution – 1b:

Standard rate of direct labor = $6.50/hour

Standard hours for actual production = 5000 * 1.2 = 6000 Hrs

Actual Direct labor cost = $44850

Actual Direct labor hours = 6500

Actual rate of direct labor = 44,850/6500 = 6.90/Hr

Labor rate variance = (SR – AR) * AH = (6.50 – $6.90) * 6500 = $2,600 (U)

Labor efficiency variance = (SH – AH) * SR = (6000 – 6500) * 6.50 = $3,250 (U)