Direct materiais: 6 microns per toy at $1.50 per micron Direct labor: 1.3 hours per toy at $21 per hour
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Direct Materials and Direct Labor Variances
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:
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:
a. The materials price and quantity variances.
b. The labor rate and efficiency variances.
2. Prepare a brief explanation of the possible causes of each variance.
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