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 $0.35 per micron  
Direct labor: 1.4 hours per toy at $7.20 per hour 
During July, the company produced 5,200 Maze toys. Production data for the month on the toy follow: 
Direct materials: 74,000 microns were purchased at a cost of $0.33 per micron. 35,000 of these microns were still in inventory at the end of the month. 
Direct labor: 7,780 direct laborhours were worked at a cost of $61,462. 
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). Do not
round intermediate calculations. Round final answer to the nearest whole
dollar.)

a.  The materials price and quantity variances. 
Explanation:
1a.
1b.
Direct labor variances:
Notice
in the solution below that the materials price variance is computed on
the entire amount of materials purchased, whereas the materials quantity
variance is computed only on the amount of materials used in
production.

Actual Quantity of Input, at Actual Price  Actual Quantity of Input, at Standard Price  Standard Quantity Allowed for Output, at Standard Price  
(AQ × AP)

(AQ × SP)

(SQ × SP)
 
74,000 microns × $0.33 per micron  39,000 microns × $0.35 per micron  31,200 microns* × $0.35 per micron  
= $24,420  = $13,650  = $10,920  
Price Variance,
$1,480 F   
74,000 microns × $0.35 per micron   
=$25,900
 
Quantity Variance, $2,730 U

*5,200 toys × 6 microns per toy = 31,200 microns 
Alternatively, the variances can be computed using the formulas: 
Materials price variance = AQ (AP – SP) 
74,000 microns ($0.33per micron – $0.35per micron) = $1,480 F 
Materials quantity variance = SP (AQ – SQ) 
$0.35 per micron (39,000 microns – 31,200 microns) = $2,730 U 
1b.
Direct labor variances:
Actual Hours of Input, at the Actual Rate  Actual Hours of Input, at the Standard Rate  Standard Hours Allowed for Output, at the Standard Rate  
(AH × AR)

(AH × SR)

(SH × SR)
 
7,780 hours × $7.20 per hour  7,280 hours* × $7.20 per hour  
$61,462  = $56,016  = $52,416  
Rate Variance,
$5,446 U 
Efficiency Variance,
$3,600 U  

Spending Variance,
$9,046 U  
*5,200 toys × 1.40 hours per toy = 7,280 hours 
Alternatively, the variances can be computed using the formulas: 
Labor rate variance = AH (AR – SR) 
7,780 hours ($7.90 per hour* – $7.20 per hour) = $5,446 U 
*$61,462 ÷ 7,780 hours = $7.90 per hour 
Labor efficiency variance = SR (AH – SH) 
$7.20 per hour (7,780hours – 7,280 hours) = $3,600 U 