Exercise 10-8 Direct Materials and Direct Labor Variances [LO10-1, LO10-2] Dawso

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 $0.34 per micron Direct labor: 1.2 hours per toy at $7.30 per hour During July, the company produced 5,500 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. 25,875 of these microns were still in inventory at the end of the month. Direct labor 7,200 direct labor-hours were worked at a cost of $56,880. 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 1a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency variance

Explanation / Answer

1 (a) Material Price Variance = Actual Quantity (Standard Price - Actual Price) = 48125 ($0.34 - $0.31)     1,443.75 (Favorable) Actual Quantity used = Materials purchased - Closing Materials balance = 74000 - 25875        48,125 Material Quantity Variance = (Standard Quanity - Actual Quantity) * Standard Price = (7*5500 - 48125) * $0.34      (3,272.5) (Unfavorable) 1(b) Labour Rate Variance = Actual Hours (Standard Rate - Actual Rate) = 7200 ($7.30 - $7.9)         (4,320) (Unfavorable) Actual Rate = Actual Labour Cost / Actual Hours = 56880 / 7200 $7.90 Labour efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate = (5500 * 1.2 - 7200) * $7.3         (4,380) (Unfavorable)

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