Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2447469 • 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 17,600 pounds of materials at a cost of $3.25 per pound.
Used 12,400 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $7,560 for the month. A total of 1,800 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).)
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
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).)
1) Materials price variance = (Actual price - Standard Price) *Actual Quantity
Materials price variance = (2.80-3.25)*17600
Materials price variance = $ 7920 Favorable
2). Materials usage/quantity variance = (Actual Quantity Used- Standard Quantity)Standard Price
Materials usage/quantity variance = (12400 - 3000*4.2)*2.80
Materials usage/quantity variance = $ 560 Favorable
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).)
1) Labor rate variance = (Actual Rate-Standard Rate)*Actual Hour
Labor rate variance = (8. - 8.30)*2100
Labor rate variance = $ 630 Favorable
2) Labor efficiency variance = (Actual Hour-Standard Hour )Standard Rate
Labor efficiency variance = (2100 - 3000*0.5)*8.30
Labor efficiency variance = 4980 Unfavorable
c) 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).)
1) Variable Overhead rate variance = (Actual Rate*Actual Hour -Standard Rate*Actual Hour )
Variable Overhead rate variance = (7560 - 3.80*1800)
Variable Overhead rate variance = $ 720 Unfavorable
2) Variable Overhead efficiency variance =(Actual Hour-Standard Hour )Standard Rate
Variable Overhead efficiency variance = (1800-3000*0.5)*3.80
Variable Overhead efficiency variance = 1140 Unfavorable
2) 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).)
Summary of variances: Material price variance 7920 U Material quantity variance 560 F Labor rate variance 630 F Labor efficiency variance 4980 U Variable overhead rate variance 720 U Variable overhead efficiency variance 1140 U Net variance $13,570 U