EXERCISE 11-7 Direct Materials and Direct Labor Variances [LO2, LO3] Dawson Toys
ID: 2398674 • Letter: E
Question
EXERCISE 11-7 Direct Materials and Direct Labor Variances [LO2, LO3] Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standand cost system to help control costs and has established the following standards for the Maze toy: Direct materials: 6 microns per toy at $0.50 per micron Direct labor: 1.3 hours per toy at $8 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 $0.48 per micron. 5,000 of these Direct labor: 4,000 direct labor-hours were worked at a cost of $36,000 Required: I. Compute the following variances for July: microns were still in inventory at the end of the month. d. cl. b. Direct materials price and quantity variances. Direct labor rate arnd efficiency variancesExplanation / Answer
Solution:
Part 1(a) –
Direct Material Price Variance
Direct Material Price Variance
Actual Price
0.48
Per Unit
Standard Price
0.50
Per Unit
Variance or Difference in Price
0.02
Per Unit
x Actual Quantity PURCHASED
25,000
Units
Material Price Variance
$500
Favorable
Direct Material Quantity Variance
Direct Material Quantity/Efficiency Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity
3000
Toys
x Allowed Standard Quantity Per Unit
6
microns per toy
Total Standard Quantity Allowed for actual production (SQAP)
18,000
Microns
Actual Quantity USED (AQU) (Total Purchase 25,000 - Ending Inventory 5,000)
20,000
Microns
Variance or Difference in Quantity
2,000
Microns
x Standard Price (SP)
0.50
Per Microns
Material Quantity/Efficiency Variance
1000.00
Unfavorable
Part 1(b) –
Labor Rate Variance
Actual Hourly Rate ($36,000 / 4,000 Hrs)
$9.00
Per Hour
Standard Hourly Rate
$8.00
Per Hour
Variance or Difference in Rate
$1.00
Per Hour
x Actual Labor Hours worked
4000
Hours
Labor Rate Variance
$4,000
Unfavorable
Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
3000
Toys
x Allowed Standard Hours Per Unit
1.3
hours
Total Standard Hours Allowed for actual production (SHAP)
3,900
hours
Actual Labor Hours Worked (AH)
4,000
hours
Variance or Difference in Hours
100
hours
x Standard Hourly Rate (SHR)
$8.00
per hour
Labor Efficiency Variance
$800
Unfavorable
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Direct Material Price Variance
Actual Price
0.48
Per Unit
Standard Price
0.50
Per Unit
Variance or Difference in Price
0.02
Per Unit
x Actual Quantity PURCHASED
25,000
Units
Material Price Variance
$500
Favorable
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