Dawson Toys, Ltd., produces a toy called the Maze. The company has recently created 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 $0.33 per micron
Direct labor: 1.2 hours per toy at $7.10 per hour

During July, the company produced 5,100 Maze toys. The toy's production data for the month are as follows:

Direct materials: 72,000 microns were purchased at a cost of $0.30 per micron. 33,750 of these microns were still in inventory at the end of the month.
Direct labor: 6,420 direct labor-hours were worked at a cost of $50,076.

Required:
Compute the following variance for july:

a The materials price and quantity variances
b. The labor rate and efficiency variances

ee

Explanation:

To calculate the direct material price and quantity variance, we need to use the following formulas:

Direct material price variance= (standard price - actual price)*actual quantity

Direct material price variance= (0.33 - 0.3)*72,000

Direct material price variance= $2,160 favorable

Direct material quantity variance= (standard quantity - actual quantity)*standard price

Direct material quantity variance= (6*5,100 - 38,250)*0.33

Direct material quantity variance= $2,524.5 unfavorable

To calculate the direct labor time and rate variance, we need to use the following formulas:

Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate

Direct labor time (efficiency) variance= (1.2*5,100 - 6,420)*7.1

Direct labor time (efficiency) variance= $2,130 unfavorable

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

Direct labor rate variance= (7.1 - 7.8)*6,420

Direct labor rate variance= $4,494 unfavorable

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