Question - Hoopahup Toys Ltd. Produces a toy called the Rabbit. The company has recently established a standard cost system for Rabbit toy as follows:
Direct materials: 6 meters per Rabbit toy at $0.50 per meter.
Direct labour: 1.3 hours per Rabbit toy at $8 per hour.
During July, the company produced 3,000 units of Rabbit toys, and the production data for the month as follows:
Direct materials: 25,000 meters were purchased at a cost of $0.48 per meter. 5,000 of these meters 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
Required:
1. Compute direct materials price and quantity variances.
2. Compute direct labour rate and efficiency variances.
3. Prepare a brief explanation of the possible causes of each variance.