Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2446805 • 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 33,700 pounds of materials at a cost of $3.15 per pound.
Used 28,500 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $12,710 for the month. A total of 3,100 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
1.CALCULATION OF VARIANCES FOR JUNE
(a)MATERIAL PRICE AND QUANTITY VARIANCE
MATERIAL PRICE VARIANCE=(ACTUAL PRICE-STANDARD PRICE)ACTUAL QUANTITY
ACTUAL PRICE=$3.15 PER POUND
STANDARD PRICE=$2.70 PER POUND
ACTUAL QUANTITY USED IN PRODUCTION =28,500
MATERIAL PRICE VARIANCE=(3.15-2.70)*28,500
=$12,825 U
MATERIAL QUANTITY VARIANCE=(ACTUAL QUANTITY-STANDARD QUANTITY)STANDARD COST PER UNIT
ACTUAL QUANTITY USED IN PRODUCTION =28,500
STANDARD QUANTITY=7,000 POOLS PRODUCED*4.1POUNDS=28,700
STANDARD PRICE=$2.70 PER POUND
MATERIAL QUANTITY VARIANCE=(28,500-28,700)2.70
=-$540 F
(b)LABOUR RATE AND EFFICIENCY VARIANCE
LABOUR RATE VARIANCE=(ACTUAL RATE-STANDARD RATE)ACTUAL HOURS
ACTUAL RATE=$7.9
STANDARD RATE=$8.20
ACTUAL HOURS=3,400
LABOUR RATE VARIANCE=(7.9-8.2)3,400
=- $ 1,020 F
LABOUR EFFICIENCY VARIANCE=(ACTUAL HOURS-STANDARD HOURS)STANDARD RATE
ACTUAL HOURS=3,400
STANDARD HOURS=7,000 POOLS PRODUCED*0.4 HOURS=2,800
STANDARD RATE=$8.20
LABOUR EFFICIENCY VARIANCE=(3,400-2,800)8.20
=$4,920 U
(c)VARIABLE OVERHEAD RATE AND EFFICIENCY VARIANCE
VARIABLE OVERHEAD RATE VARIANCE=(ACTUAL RATE-STANDARD RATE)ACTUAL HOURS
ACTUAL RATE=$4.1
STANDARD RATE=$3.7
ACTUAL HOURS =3,100
VARIABLE OVERHEAD RATE VARIANCE=(4.1-3.7)3,100
=$1,240 U
VARIABLE OVERHEAD EFFICIENCY VARIANCE=STANDARD RATE(ACTUAL HOURS-STANDARD HOURS)
ACTUAL HOURS =3,100
STANDARD RATE=$3.7
STANDARD HOURS=7,000 POOLS PRODUCED*0.4 HOURS=2,800
VARIABLE OVERHEAD EFFICIENCY VARIANCE=3.7(3,100-2,800)
=$1,110 U
2.SUMMARY OF VARIANCES CALCULATED ABOVE
MATERIAL PRICE VARIANCE =$12,825 U
MATERIAL QUANTITY VARIANCE =-$540 F
LABOUR RATE VARIANCE =- $ 1,020 F
LABOUR EFFICIENCY VARIANCE =$4,920 U
VARIABLE OVERHEAD RATE VARIANCE =$1,240 U
VARIABLE OVERHEAD EFFICIENCY VARIANCE=$1,110 U
NET OVERALL VARIANCE FOR THE MONTH =$18,535 U
3.THE TWO MOST SIGNIFICANT VARIANCES ARE MATERIAL PRICE VARIANCE AND LABOUR EFFICIENCY VARIANCE