Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2479828 • 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
Sales (7,000 pools)
$
235,000
$
235,000
Variable expenses:
Variable cost of goods sold*
78,540
96,420
Variable selling expenses
18,000
18,000
Total variable expenses
96,540
114,420
Contribution margin
138,460
120,580
Fixed expenses:
Manufacturing overhead
54,000
54,000
Selling and administrative
69,000
69,000
Total fixed expenses
123,000
123,000
Net operating income (loss)
$
15,460
$
(2,420)
*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 or Hours
Standard Price
or Rate
Standard Cost
Direct materials
3.4 pounds
$
2.40 per pound
$
8.16
Direct labor
0.3 hours
$
6.40 per hour
1.92
Variable manufacturing overhead
0.6 hours*
$
1.90 per hour
1.14
Total standard cost
$
11.22
*Based on machine-hours.
During June the plant produced 7,000 pools and incurred the following costs:
a.
Purchased 28,800 pounds of materials at a cost of $2.85 per pound.
b.
Used 23,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c.
Worked 2,700 direct labor-hours at a cost of $6.10 per hour.
d.
Incurred variable manufacturing overhead cost totaling $10,350 for the month. A total of 4,500 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 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 variance
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).)
Variable overhead rate variance
Variable overhead efficiency variance
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
Material quantity variance
Labor rate variance
Labor efficiency variance
Variable overhead rate variance
Variable overhead efficiency variance
Net variance
$0
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
Material price variance = AQ [AR-SR]
= 23600 [ 2.85-2.4]
= 10620 U
Material quantity variance =SR [AQ-SQ]
= 2.4 [ 23600 - (7000*3.4)]
= 2.4 [23600 - 23800]
= 2.4 * -200
= - 480 F
B)Labor rate variance = AH [AR-SR]
= 2700 [6.1 - 6.4]
= - 810 F
Labor efficiency variance = SR [AH -SH]
= 6.4 [ 2700- (7000*.3)]
= 6.4 [ 2700 - 2100]
= 3840 U
C)Variable overhead rate variance = AH [AR-SR]
= 10350 - [4500 * 1.9]
= 10350 - 8550
= 1800 U
Variable efficiency variance = SR [AH-SH]
= 1.9 [ 4500 - (7000* .6)]
= 1.9 [4500 - 4200]
= 570 U
Net variance = 10620-480-810+3840+1800+570=15027 U