Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2476444 • 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 $273,000 $273,000 Sales (6,000 pools) Variable expenses Variable cost of goods sold* 83.460 102.050 Variable selling expenses Total variable expenses Contribution margin Fixed expenses 24,000 24,000 107,460 26,050 165,540 146,950 Manufacturing overhead Selling and administrative 65.000 65.000 90,000 90,000 155.000 155.000 $ 10,540 $ (8,050) 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 Standard Quantity Standard Price Standard or Hours 4.0 pounds 0.3 hours or Rate $2.60 per pound $8.10 per hour $3.60 per hour Cost Direct materials Direct labor Variable manufacturing overhead 0.3 hours 10.40 2.43 1.08 Total standard cost $13.91 *Based on machine-hours During June the plant produced 6,000 pools and incurred the following costs a. Purchased 29,000 pounds of materials at a cost of $3.05 per pound b. Used 23,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 2,400 direct labor-hours at a cost of $7.80 per hour d. Incurred variable manufacturing overhead cost totaling $8,400 for the month. A total of 2,100 machine-hours was recorded It is the company's policy to close all variances to cost of goods sold on a monthly basis Required: 1. Compute the following variances for June 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 varianceExplanation / Answer
1a.
Direct Materials price variance= (AQXAP)-(AQXSP)
= (29,000X$3.05)-(29000X$2.60)
= 88450-75400=13050(U)
1a.
Direct Materials Quantity variance
= (AQXSP) – (SQXSP)
=(23800X2.60)- [(6000X4)X2.60)]
=61880-62400=520 (F)
1b. Direct labor rate variance
= (AHXAR)-(AHXSR)
=(2400X7.80)-(2400X8.10)
=720(F)
1b. Direct labor efficiency variance
= (AHXSR) – (SHXSR)
= (2400X8.10)-[(6000X0.3)X8.10) ]=4860(F)
1c.Variable overhead spending variance
= (AHXAR)-(AHXSR)
=(8400)-(2100X3.60)=840(U)
1.c Variable overhead efficiency variance
=(AHXSR)-(SHXSR)
=(2100X3.6)-[(6000X0.3)X3.60)]=10800(U)
2.Variance Analysis
Direct Materials price variance =$13050 Unf
Direct Materials Quantity variance =520 Fav
Direct labor rate variance =720 Fav
Direct labor efficiency variance =4860 Fav
Variable overhead spend variance =840 Unf
Variable ovhead efficiency variance=1080 Unf
Net Variance for the month =$8870 (U)