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: 7 microns per toy at $0.32 per micron Direct labor: 1.2 hours per toy at $7.20 per hour During July, the company produced 4,600 Maze toys. The toy's production data for the month are as follows: Direct materials: 80,000 microns were purchased at a cost of $0.30 per micron. 39,750 of these microns were still in inventory at the end of the month. Direct labor: 5,920 direct labor-hours were worked at a cost of $46,768. Required:
1. Compute the following variances for July:
a. The materials price and quantity variances
Material price variance
Material quantity variance

b. The labor rate and efficiency variances.
Labor rate variance
Labor efficiency variance

Results are below.

Explanation:

To calculate the direct material rate and quantity variance, we need to use the following formula:

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

Direct material price variance= (0.32 - 0.3)*80,000

Direct material price variance= $1,600 favorable

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

Direct material quantity variance= (7*4,600 - 40,250)*0.32

Direct material quantity variance= $2,576 unfavorable

To calculate the direct labor efficiency and rate variances, 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*4,600 - 5,920)*7.2

Direct labor time (efficiency) variance= $2,880 unfavorable

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

Direct labor rate variance= (7.2 - 7.9)*5,920

Direct labor rate variance= $4,144 unfavorable

Actual rate= 46,768/5,920= $7.9