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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: 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:
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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