Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2447096 • 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 33,800 pounds of materials at a cost of $2.65 per pound.
Used 28,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $12,600 for the month. A total of 3,500 machine-hours was recorded.
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
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:
Required: a. 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).) Material price variance Material quantity variance b. 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).) Labor rate variance Labor efficiency varianceExplanation / Answer
1) Material price variance = ( Std rate - Actual price) actual purchased
= ( $2.20 - $2.65) 33,800
= 15,210(U)
2) Material qty variance = (Std qty allowed - actual used) Std price
= ( 8000 *3.6 - 28,600) 2.2
= 440(F)
3) Labor rate varaince = ( std rate - actual rate) Actual hrs
= (7.70 - 7.40) 4600
= 1380(F)
4) Labor efficiency variance = ( Std hrs for actual production - Actual hrs ) Std rate
= (.50 * 8000 - 4600) 7.7
= 4620(U)
5) Variabel overhead rate & efficiency variance
Rate variance = ( Std rate - Actual rate) * actual hrs
= (3.20 - 3.60 ) 3500
= 1400(U)
6) Efficiency variance = ( .4 *8000 - 3500) 3.2
= 960(U)
2)Summaary of vairances :
3)Material price variance and labor efficiency variance
Material price variance $15,210 (U) Material qty vairance 440 (F) Labor rate variance 1,380 (F) Labor efficieny variance 4620 (U) Vairbale ovehead rate variance 1400 (U) Variable overhead efficiency variane 960 (U) Net vairance $20,370 (U)