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:

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 labor-hours 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.

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