Response to the following problem:
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 labor: 1.3 hours per toy at $8 per hour
During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow:
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 the following variances for July:
(a) Direct materials price and quantity variances.
(a) Direct labor rate and efficiency variances.
2. Prepare a brief explanation of the possible causes of each variance.