Review Exercise 10-8 on pages 452-453 of the text, and compute the material and labor variances as required. Make sure to show your calculations. Also, prepare a brief explanation of the possible causes of each variance. What actions can management take to minimize future variances?
Exercise 10-8
Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established 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. Production data for the month on the toy follow: Direct materials: 25,000 microns were purchased at a cost of $0.48 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 $36,000. Required: Compute the following variances for July: The materials price and quantity variances. The labor rate and efficiency variances. Prepare a brief explanation of the possible causes of each variance.
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