Material and Labor Variances Topper Toys has developed a new

Material and Labor Variances

Topper Toys has developed a new toy called the Brainbuster. The company has a standard cost system to help control costs and has established the following standards for the Brainbuster toy:

                        Direct materials: 8 diodes per toy at $0.30 per diode

                        Direct labor: 1.2 hours per toy at $7 per hour

            During August, the company produced 5,000 Brainbuster toys. Production data on the toy for August follows:

            Direct materials: 70,000 diodes were purchased for use in production at a cost of $0.28    per diode. Some 20,000 of these diodes were still in inventory at the end of the month.

            Direct labor: 6,400 direct labor-hours were worked at a cost of $48,000.

Required:

1.                  Compute the following variances for August (and circle whether they are favorable or unfavorable:

            a.    Direct materials price and quantity variances.

            b.    Direct labor rate and efficiency variances.

a.       Direct Materials Price Variance        =          __________    favorable or unfavorable

Direct Materials Quantity Variance =          __________    favorable or unfavorable

b.      Direct Labor Rate Variance                =          __________    favorable or unfavorable

Direct Labor Efficiency Variance      =          __________    favorable or unfavorable

Solution

a) Direct material price variance = (0.30-0.28)*70000 = 1400 Favorable

Direct material quantity variance = (5000*8-50000)*0.30 = 3000 Unfavorable

b) Direct labour rate variance = (7*6400-48000) = 3200 Unfavorable

Direct labour efficiency variance = (5000*1.2-6400)*7 = 2800 Unfavorable