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: Direct materials: 6 microns per toy at £0.50 per micronDirect labour: 1.0 hours per toy at £6 per hour During July, the company produced 2,000 Maze toys. Production data for the month on the toy follow:Direct materials: 16,400 microns were purchased for use in production at a cost of £0.42 per micron. Some 4,000 of these microns were still in inventory at the end of the month.Direct labour: 3,200 direct labour-hours were worked at the cost of £24,640. Required:1.Compute the following variances for July: (a)Compute direct materials price variance Compute direct materials quantity variance (b)Compute direct labour rate variance. Compute direct labour efficiency variance. 2.(a)Identify which of the following is NOT a possible cause of a favourable material price variance. multiple choice 1An efficient purchasing departmentPurchasing a lower grade material at a discountBuying large quantities to take advantage of quantity discountsAn increase in the market price of the material (b)Identify which of the following is a possible reason for an unfavourable material quantity variance. multiple choice 2Outdated standardsWell trained and supervised workersProperly adjusted machines, and quality materialsLess materials used to produce the actual output than were called for by the standard (c)Identify which of the following is NOT a possible cause of an unfavourable labour rate variance. multiple choice 3An increase in wages that has not been reflected in the standardsLess skilled workers employedActual average wage rate was higher than the standard wage rateUnanticipated overtime (d)Identify which of the following is a possible reason for an unfavourable labour efficiency variance. multiple choice 4Actual number of labour hours was less than the standard labour hours allowed for the actual outputA reduction in output due to decreased demand for the company’s productsWell trained and supervised workersHigh quality materials requiring less labour time to process

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Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter9: Standard Costing: A Functional-based Control Approach

Section: Chapter Questions

Problem 20E: Jameson Company produces paper towels. The company has established the following direct materials...

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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:

Direct materials: 6 microns per toy at £0.50 per micron

Direct labour: 1.0 hours per toy at £6 per hour

During July, the company produced 2,000 Maze toys. Production data for the month on the toy follow:

Direct materials: 16,400 microns were purchased for use in production at a cost of £0.42 per micron. Some 4,000 of these microns were still in inventory at the end of the month.

Direct labour: 3,200 direct labour-hours were worked at the cost of £24,640.

Required:
1.	Compute the following variances for July:

	(a)	Compute direct materials price variance

		Compute direct materials quantity variance

	(b)	Compute direct labour rate variance.

		Compute direct labour efficiency variance.

2.	(a)	Identify which of the following is NOT a possible cause of a favourable material price variance.

		multiple choice 1 An efficient purchasing department Purchasing a lower grade material at a discount Buying large quantities to take advantage of quantity discounts An increase in the market price of the material

	(b)	Identify which of the following is a possible reason for an unfavourable material quantity variance.

		multiple choice 2 Outdated standards Well trained and supervised workers Properly adjusted machines, and quality materials Less materials used to produce the actual output than were called for by the standard

	(c)	Identify which of the following is NOT a possible cause of an unfavourable labour rate variance.

		multiple choice 3 An increase in wages that has not been reflected in the standards Less skilled workers employed Actual average wage rate was higher than the standard wage rate Unanticipated overtime

	(d)	Identify which of the following is a possible reason for an unfavourable labour efficiency variance.

		multiple choice 4 Actual number of labour hours was less than the standard labour hours allowed for the actual output A reduction in output due to decreased demand for the company’s products Well trained and supervised workers High quality materials requiring less labour time to process

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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