Exercise 1:

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

Direct materials: 6 microns per toy at $0.5 per micron

Direct labor: 1.3 hours per toy at $8 per hour

During July, the company produced 3,000 Maze toys. Production data for the month is as
follows:

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:

1. Compute direct materials price and quantity variances

2. Compute direct labor rate and efficiency variances
3. Prepare a brief explanation of the possible causes of each variance.
Exercise 2:

Preble Company manufactures one product. Its variable manufacturing overhead is applied to
production based on direct labor hours and its standard cost card per unit is as follows:

Direct materials: 5 pounds at $8 per pound $40

Direct labor: 2 hours at $14 per hour $28
Variable overhead: 2 hours at $5 per hour $10
Total standard cost per unit $78

The planning budget for March was based on producing and selling 25,000 units. However,
during March the company actually produced and sold 30,000 units and incurred the following
costs:
 Purchased 160,000 pounds of raw materials at a cost of $7.5 per pound. All of these
materials were used in production.
 Direct labor worked 55,000 hours at a rate of $15 per hour.
 Total variable manufacturing overhead for the month was $280,500.
Required:
1. Prepare the planning budget for costs of raw material, direct labor and variable
manufacturing overhead.
2. Prepare the flexible budget for costs of raw material, direct labor and variable
manufacturing overhead.
3. Show the spending variances of raw material, direct labor and variable manufacturing
overhead.
4. Perform variance analysis for raw material, direct labor and variable manufacturing
overhead.