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: 6 microns per toy at $1.50 per micron Direct labor: 1.3 hours per toy at $21 per hourDuring 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 $1.48 per micron. 5,000 of these microns were still in inventory at the end of the month.Direct labor: 4,000 direct labor-hours were worked at a cost of $88,000.Required: 1. Compute the following variances for July:a. The materials price and quantity variances.b. The labor rate and efficiency variances.2. Prepare a brief explanation of the possible causes of each variance.

Material price variance: Standard cost per micron is $1.50 and actual cost per micron is $1.48. So, price variance is 1.48 - 1.5 = $(0.02) per micron

Quantity variance: Based on standard bill of material, Dawson Toys need 3,000 x 6 = 18,000 microns to produce 3,000 Maze toys. Actual consumption volume is 25,000 - 5,000 = 20,000 microns. So, quantity variance is 20,000 - 18,000 = 2,000 microns.

1. b. The labor rate and efficiency variances

Actual labor rate = Actual labor cost / Actual hour = 88,000/4,000 = $22 per hour.

Efficiency variance = Actual labor rate - Standard labor rate = 22 - 21 = $1 per hour.

2. Prepare a brief explanation of the possible causes of each variance.

Direct material cost variance: Total actual material cost is 20,000 x 1.48 = $29,600, higher than standard material cost of 18,000 x 1.5 = $27,000. This is mainly due to higher production waste as compared to standards.

Direct labor cost variance: Total actual labor cost is $88,000, higher than standard labor cost of 4,000 x 21 = $84,000. This is mainly due to lower labor rate per hour than expected.

anthougo anthougo · Answer 2 · 2022-03-31T17:46:12+02:00

1) The computation of the variances for July for Dawson Toys, Ltd. is as follows:

a1) Materials price variance = $400 Favorable ($1.50 - $1.48) x 20,000

a2) Quantity variance = $3,0156 Unfavorable (6 - 6.67) x 3,000 x $1.50)

b1) Labor rate variance = $21,200 Favorable ($27.30 - $22) x 4,000

b2) Labor efficiency variance = $2,730 Unfavorable (4,000 - 3,900) x $27.30

2. A brief explanation of the possible causes of each variance follows:

a1) The favorable materials price variance of $400 was caused by the reduced cost of materials per micron, which was lower than the budgeted cost by $0.02 ($1.50 - $1.48).

a2) The unfavorable quantity variance of $3,0156 resulted from the number of micros used to produce a toy, which was higher by 0.67 units than the standard units allowed.

b1) The favorable labor rate variance of $21,200 was the result of the labor rate paid per unit compared to the standard labor rate.

b2) The unfavorable labor efficiency variance of $2,730 shows that more labor hours were used to produce 3,000 toys than the standard labor hours allowed.

Data and Calculations:

Direct materials: 6 microns per toy at $1.50 per micron = $9.00 ($1.50 x 6)

Direct labor: 1.3 hours per toy at $21 per hour = $27.30 ($21 x 1.3)

Production units during July = 3,000 toys

Direct materials:

Purchases = 25,000 microns at a cost of $1.48 per micron = $37,000

Ending inventory = 5,000 of these microns

Units consumed in production = 20,000 (25,000 - 5,000) microns

Actual microns per unit = 6.67 (20,000/3,000)

Direct labor:

Direct labor-hours = 4,000 hours

Direct labor costs = $88,000

Direct labor cost per hour = $22 ($88,000/4,000)

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