Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2394962 • Letter: M
Question
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below. Sales (4,000 pools) $ 210,000 $210,000 Variable expenses Variable cost of goods sold* Variable selling expenses 50,680 63,710 12,000 12,000 2,680 75,710 147,320 134,290 Total variable expenses Fixed expenses: Manufacturing overhead Selling and administrative 61,000 61,000 76,000 76,000 137,000 137,000 $ 10,320 (2,710) Total fixed expenses Net operating income (loss) Contains direct materials, direct labor, and variable manufacturing overhead. Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given instructions to "get things under control." Upon reviewing the plant's income statement, Ms. Dunn has concluded that the major problem lies in the variable cost of goods sold. She has been provided with the following standard cost per swimming pool: Standard QuantityStandard Price Standard Cost or Rate Direct materials Direct labor Variable manufacturing overhead or Hours 3.7 pounds 0.6 hours 0.4 hours" $2.10 per poundS $8.70 per hour $2 20 per hour 4.02 0.88 Total standard cost S 12.67 Based on machine-hours. During June the plant produced 4,000 pools and incurred the following costs: a. Purchased 19,800 pounds of materials at a cost of S2.55 per pound. b. Used 14,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,000 direct labor-hours at a cost of $8.40 per hour d. Incurred variable manufacturing overhead cost totaling 54,940 for the month. A total of 1,900 machine- hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis.Explanation / Answer
ans 1 In $ Material Price variance 8910 U (AQ*AP)-(AQ*SP) (19800*2.55)-(19800*2.1) Material Quantity variance 420 F SP*(Aq used -SQ allowed) -420 2.1*(14600-(4000*3.7)) Labor rate variance 900 F (AH*AR)-(AH*SR) -900 (3000*6.4)-(3000*6.7) Labor efficiency variance 4020 U SR*(AH-SH allowed) 6.7*(3000-(4000*.6)) Variable overhead rate variance Actual varaible overhead-(AH*SR) 1660 F 4940-(3000*2.2) -1660 Variable overhead efficiency varaince SR*(AH-SH allowed) 1320 U 2.2*(3000-(4000*.6)) Ans 2 Material Price variance 8910 U Material Quantity variance 420 F Labor rate variance 900 F Labor efficiency variance 4020 U Variable overhead rate variance 1660 F Variable overhead efficiency varaince 1320 U ans 3 Material Price variance 8910 U Labor efficiency variance 4020 U If any doubt please comment. If satisfiied you can rate