Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2461435 • 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: Budgeted Actual $ 265,000 $ 265,000 Sales (8,000 pools) Variable expenses: Variable cost of goods sold* Variable selling expenses 88,960106,490 16,000 16,000 lotal variable expenses 104,960 122,490 Contribution margin 160,040 142,510 Fixed expenses: Manufacturing overhead Selling and administrative 65,000 80,000 65,000 80,000 145,000 145,000 $15,040 $ (2,490) 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:Explanation / Answer
1.
2.
Material Price Variance = (Standard Price-Actual Price)*Actual Quantity = (2.5-2.95)*29000 = 13,050 Unfavorable Material Qunatity variance = (Standard Quantity-Actual Quantity)*Standard Rate = (8000*3-29000)*2.5 = 12,500.00 Unfavorable Labour rate variance = (standard Rate-Actual rate)*Actual Hours = (7.10-6.80)*3800 = 1,140.00 Favorable Labour efficiency Variance = (standard Hours-Actual hours)*Standard Rate = (8000*.4-3800)*7.10 = 4,260.00 Unfavorable Variable overhead Rate variance = (standard Rate-Actual rate)*Actual Hours = (2.6-3)*2700 = 1,080.00 Unfavorable Variable overhead Efficiency variance = (standard Hours-Actual hours)*Standard Rate = (8000*.3-2700)*2.6 = 780.00 Unfavorable