Question # 1: (25 Marks)

Children Toys, Ltd. produces a toy called the Joy. Overhead is applied to products on the basis of direct labour hours. The company has recently implemented a standard cost system to help control costs and has established the following standards for the Joy toys:

Direct materials: 6 units per toy at $0.50 per unit

Direct labour: 1.3 hours per toy at $ 8.00 per hour

Variable manufacturing overhead: $4.00 per hour

During July, the company produced 3,000 toys. The fixed overhead expense budget for July was $24,180 with 4030 direct labour hours as the denominator level of activity. Production data for the month on the toys follow:

Direct materials: 25,000 units were purchased at a cost of $0.48 per unit. 5,000 of these units were still in inventory at the end of the month.

Direct Labour : 4,000 direct labour hours were worked at a cost of $36,000.

Variable overhead : Actual cost in July was $ 17,000.

Fixed Overhead : Actual cost in July was $25,000.

Required:

1. Prepare variances for the materials(5), labour(4), variable manufacturing overhead(4) and fixed manufacturing overhead variances(4)
2. Prepare journal entries only for materials and labour.(8 Marks)