2. Prepare a brief explanation of the possible causes of each variance.

EXERCISE 108 Direct Materials and Direct Labor Variances L010-1, L010-2 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. 1. a. Notice in the solution below that the materials price variance is computed on the entire amount of materials purchased, whereas the materials quantity variance is computed only on the amount of materials used in production. Actual Quantity Standard Quantity of Input, at Actual Quantity of Allowed for Output, at Actual Price Input, at Standard Price Standard Price (AQ X AP) (AQ SP) (SQ SP) Materials price variance, Materials quantity variance, $ b. Direct labor variances: Actual Hours of Input, at the Actual Rate (AH AR) Actual Hours of Input, at the Standard Rate (AH ~ SR) Standard Hours Allowed for Output, at the Standard Rate (SH X SR) Labor rate variance, Labor efficiency variance, Spending variance