Question

Dawson Toys, Limited, produces a toy called the Maze with the following standards:

Direct materials: 6 microns per toy at $1.50 per micron

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.

Direct labor: 4,000 direct labor-hours were worked at a cost of $88,000.

Required:
1. Compute the following variances for July:
Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.

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

Answer 1

To compute the variances, we will follow these steps:

### 1. Direct Materials Variances

#### a. Materials Price Variance (MPV)
The formula for the materials price variance is:

\[
\text{MPV} = (\text{Actual Price} - \text{Standard Price}) \times \text{Actual Quantity Purchased}
\]

- Actual Price = $1.48 per micron
- Standard Price = $1.50 per micron
- Actual Quantity Purchased = 25,000 microns

\[
\text{MPV} = (1.48 - 1.50) \times 25,000 = (-0.02) \times 25,000 = -500
\]

Since this is negative, it is unfavorable (U).

#### b. Materials Quantity Variance (MQV)
The formula for the materials quantity variance is:

\[
\text{MQV} = (\text{Actual Quantity Used} - \text{Standard Quantity Allowed}) \times \text{Standard Price}
\]

- Actual Quantity Used = Actual Quantity Purchased - Ending Inventory = 25,000 - 5,000 = 20,000 microns
- Standard Quantity Allowed = Number of Toys Produced × Standard Materials per Toy = 3,000 × 6 = 18,000 microns
- Standard Price = $1.50 per micron

\[
\text{MQV} = (20,000 - 18,000) \times 1.50 = 2,000 \times 1.50 = 3,000
\]

This is positive, so it is favorable (F).

### 2. Direct Labor Variances

#### a. Labor Rate Variance (LRV)
The formula for the labor rate variance is:

\[
\text{LRV} = (\text{Actual Rate} - \text{Standard Rate}) \times \text{Actual Hours Worked}
\]

- Actual Rate = Total Actual Labor Cost / Actual Hours Worked = $88,000 / 4,000 hours = $22 per hour
- Standard Rate = $21 per hour
- Actual Hours Worked = 4,000 hours

\[
\text{LRV} = (22 - 21) \times 4,000 = 1 \times 4,000 = 4,000
\]

This is positive, so it is unfavorable (U).

#### b. Labor Efficiency Variance (LEV)
The formula for the labor efficiency variance is:

\[
\text{LEV} = (\text{Actual Hours Worked} - \text{Standard Hours Allowed}) \times \text{Standard Rate}
\]

- Standard Hours Allowed = Number of Toys Produced × Standard Labor Hours per Toy = 3,000 × 1.3 = 3,900 hours
- Actual Hours Worked = 4,000 hours
- Standard Rate = $21 per hour

\[
\text{LEV} = (4,000 - 3,900) \times 21 = 100 \times 21 = 2,100
\]

This is positive, so it is unfavorable (U).

### Summary of Variances
- **Materials Price Variance (MPV):** $500 U
- **Materials Quantity Variance (MQV):** $3,000 F
- **Labor Rate Variance (LRV):** $4,000 U
- **Labor Efficiency Variance (LEV):** $2,100 U

### Final Answer
- MPV: $500 U
- MQV: $3,000 F
- LRV: $4,000 U
- LEV: $2,100 U