Follow instructions on screen? I Start (--> O |https:/ Onln ACC 219 Chapter 10 H
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I Start (--> O |https:/ Onln ACC 219 Chapter 10 Help Save & Exit Submit 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 6 microns per toy at $1.50 per micron 10 points Direct labor: 1.3 hours per toy at $21 per hour During July, the company produced 3,000 Maze toys. The toy's production data for the month are as follows 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 ReferencesDirect labor 4,000 direct labor-hours were worked at a cost of $88,000o. 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 ell amounts as positive values.) a. The materials price and quantity variances b. The labor rate and efficiency variances K Prev2 of 2 0 Type here to search 1/4/20175Explanation / Answer
Solution:
1a.
Material Price Variance
$500
Favorable
Material Quantity Variance
$3,000
Unfavorable
1b.
Labor Rate Variance
$4,000
Unfavorable
Labor Efficiency Variance
$2,100
Unfavorable
1-a)
Material Price Variance
Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:
Material Price Variance = Actual Quantity (Standard Price – Actual Price)
Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.
Actual quantity of raw material purchased = 25,000 microns
Actual price per unit = $1.48
Standard Price per unit = $1.50
Material Price Variance = Actual Quantity 25,000 (Standard Price 1.50 - Actual Price 1.48) = $500 Favorable
Material Quantity/Efficiency/Usage Variance
Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:
Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)
Note --- Here actual quantity means actual quantity of material CONSUMED/USED
Actual Quantity Used in production = 25,000 Purchased – 5,000 still in inventory = 20,000 microns used in production.
Standard Quantity for Actual Production = Actual Produced Units 3,000 toys x 6 microns per toy is required = 18,000 Microns
Material Quantity Variance = Standard Price $1.50 (Standard Quantity for Actual Production 18,000 – Actual Quantity USED 20,000)
= $3,000 Unfavorable
1-b)
Labor Rate/Price Variance
Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:
Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)
Here, actual time means time for which wage has been paid.
Actual Rate per hour = Total Actual Labor Cost $88,000 / Actual Direct labor hours 4,000 = $22
Actual Hours worked = 4,000 hours
Standard Rate = $21 per hour
Labor Rate Variance = Actual Time 4,000 (Standard Rate per hour $21 – Actual Rate per hour $22)
= $4,000 Unfavorable
Labor Efficiency / Usage Variance
Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.
Standard Hours for Actual Production = Actual Produced Units 3,000 toys x Per Toy Required Hours 1.3 hrs = 3,900 Hours
Labor Efficiency Variance = Standard Rate $21 (Std. hours for actual production 3,900 – Actual Hours 4,000)
= $2,100 Unfavorable
1a.
Material Price Variance
$500
Favorable
Material Quantity Variance
$3,000
Unfavorable
1b.
Labor Rate Variance
$4,000
Unfavorable
Labor Efficiency Variance
$2,100
Unfavorable