Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2483473 • 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 19,800 pounds of materials at a cost of $2.55 per pound.
Used 14,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $4,940 for the month. A total of 1,900 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).)
Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)
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
All Amounts in $ 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 = (Standard Rate per unit - Actual Rate per unit) X Actual RM Quantity purchased = (2.10 - 2.55) X 19,800 = -8910 U Material Quantity Variance = (Standard Quantity required - Actual Quantity used) X Standard Rate per unit = ((4,000 X 3.7) - 14,600) X 2.10 = 420 F 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 = (Standard Rate per labor hour - Actual Rate per labor hour) X Actual No. of Labor hours worked = (6.70 - 6.40) X 3,000 = 900 F Labor Efficiency Variance = (Standard Labor hours worked - Actual Labor hours worked) X Standard Rate per labor hour = ((4,000 X 0.6) - 3,000) X 6.70 = -4020 U 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 = (Standard Rate per machine hour - Actual Rate per machine hour) X Actual No. of machine hours worked Actual Rate per machine hour = $ 4,940 / 1,900 = 2.6 $ per machine hour Thus, Variable Overhead Rate Variance = (2.2 - 2.6) X 1,900 = -760 U Variable Overhead Efficiency Variance = (Standard Machine Hours - Actual Machine Hours) X Standard Rate per machine hour = (( 4,000 X 0.4) - 1,900) X 2.2 = -660 U 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).) Material Price Variance -8910 U Material Quantity Variance 420 F Labor Rate Variance 900 F Labor Efficiency Variance -4020 U Variable Overhead Rate Variance -760 U Variable Overhead Efficiency Variance -660 U Total Variances -13030 3 Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) a Materials price variance a Labor efficiency variance a Variable overhead efficiency variance r Labor rate variance a Variable overhead rate variance r Materials quantity variance