Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2446485 • 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:
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:
Purchased 24,500 pounds of materials at a cost of $2.95 per pound.
Used 19,300 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $5,070 for the month. A total of 1,300 machine-hours was recorded.
Materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Variable overhead rate and efficiency variances. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)
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:
Explanation / Answer
Material Price Variance:
=PQ(AP-SP)
PQ=Quantity Purchased
AP=Actual Price
SP=Standard price
=24500*(2.95-2.5)
Variance =$9,800 (U)
Quantity Variance:
=SP(AQ-SQ)
SP=Standard Price
AQ= Actual Quantity Used =19300
SQ= Standard Qunatity Allowed=(3.9*5000)=19500
Variance=2.5*(19300-19500)=$500 (F)
b) Labour rate variance
=AH(AR-SR)
AH= actual hour used=4600
AR=actual rate per hour=$7.7
SR= standard rate per hour=$8
Variance= 4600*(7.7-8)= $1380 (F)
Efficiency Variance:
=SR(AH-SH)
SR= standard rate per hour
AH= actual hours=4600
SH= standard hours=(.8*5000)=4000
Variance=8*(4600-4000)= $4,800 (U)
c)Variable overhead rate Variance
=Actual variable overhead- ( AH*SVR)
AH= actual hours=1300
SVR= Standard Variable overhead rate=$3.5
=5070-(1300*3.5)
=$520( U)
Variable Overhead efficency Variance
=SVR(AH-SH)
SH=.2*5000= 1000
=3.5*(1300-1000)= $1050 (U)