Question 2 Standard Costing (18 Marks)

Vibrant Toys Ltd. produces a toy called the Disc. The company has recently established a standard cost system to help control costs and has established the following standards for the Disc toy:

Direct materials	10 microns per toy at $0.60 per micron
Direct labor	1.3 hours per toy at $15per hour

During July, the company produced 4,000 Disc toys. Production data for the month on the toy follow:

Direct materials:

45,000 microns were purchased at a cost of $0.55 per micron. 3,000 of these microns were still in inventory at the end of the month.

Direct labor:

5,400 direct labor hours were worked at a cost of $85,050.

Required:

1. Calculate the following variances for July: (6 Marks)

1. The materials price and quantity variances (3 Marks)
2. The labor rate and efficiency variances. (3 Marks)

2. Prepare a brief explanation of the possible causes of each variance. (12 Marks)