Exercise 10-8 Direct Materials and Direct Labor Variances [LO10-1, LO10-2] Dawso
ID: 2594439 • Letter: E
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: 7 microns per toy at $0.32 per micron Direct labor: 1.1 hours per toy at $7.30 per hour During July, the company produced 5,300 Maze toys. The toy's production data for the month are as follows: Direct materials: 74,000 microns were purchased at a cost of $0.30 per micron. 27625 of these microns were still in inventory at the end of the month. Direct labor 6,230 direct labor-hours were worked at a cost of $49,840 Required 1. Compute the following variances for July: (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations. Round final answer to the nearest whole dollar amount.) a. The materials price and quantity variances b. The labor rate and efficiency variances. a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency varianceExplanation / Answer
Solution – 1a:
Standard rate of micron = $0.32
Actual rate of micron = $0.30
Standard Qty of micron for 5300 Maze = 5300*7 = 37100
Actual Qty of Micron consumed = 74000 – 27625 = 46375
Material Price Variance = (SR – AR) * AQ = (0.32 – 0.30) * 46375 = $928 (F)
Material Qty Variance = (SQ – AQ) * SR = (37100 – 46375) * 0.32 = $2968 (U)
Solution – 1b:
Standard rate of direct labour = $7.30/hour
Standard hours for actual production = 5300 * 1.1 = 5830 Hrs
Actual Direct labor cost = $49840
Actual Direct labor hours = 6230
Actual rate of direct labor = 49840/6230 = 8/Hr
Labor rate variance = (SR – AR) * AH = (7.30 – 8) * 6230 = $4361 (U)
Labor efficiency variance = (SH – AH) * SR = (5830 – 6230) * 7.30 = $2920 (U)
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