Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2498367 • 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 23,000 pounds of materials at a cost of $3.20 per pound.
Used 8,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $1,710 for the month. A total of 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
Direct Material Price and Quantity variance:
The direct material Price Variance is based on the quantity purchased. Whereas the direct material quantity variance is based on he quantity used in production.
Direct material price Variance
= (SP - AP) x quantity purchased
= Standard cost for quantity purchased - Actual cost of purchase
= 23000 pounds x $3.00 per pound - 23000 pounds x $3.20 per pound
= $4600 Unfavourable
Direct material Quantity variance
= (Standard quantity for actual production - Actual quantity used) x Standard price of material
= (3pounds/pool x 3000 pools - 8800 pounds) x $3.00 per pound
= (9000 pounds - 8880 pounds) x $3.00 per pound
= 200 pounds x $3.00 per pound
= $600 Favourable
Labour Rate Variance
= (Standard rate - Actual rate) x actual labour hours used
= ( $6 per hour - $5.70 per hour) x 2000 hours
= $0.30 per hour x 2000 hours
= $600 Favourable
Labour Efficiency variance
= (Standard labour hours required for actual production - actual labour hours used) x standard rate
= (3000 pools x 0.30 hours/pool - 2000 hours) x $6 per hour
= (900 hours - 2000 hours) x $6 per hour
= $6600 Unfavourable
Variable overhead rate variance
= (Standard rate - actual rate) x actual machine hours used
= standard variable overhead cost for actual machine hour used - actual variable overhead cost
= $1.50 per hour x 900 hours - $1710
= $360 Unfavourable
Variable overhead efficiency variance
= (standard machine hours required for actual production - actual machine hours used) x standard variable overhead rate
= (3000 pools x 0.2 hours / pool - 900 hours) x $1.50 per hour
= (600 hours - 900 hours) x $ 1.50 per hour
= $450 Unfavourable
2)
3)
Materials price variance $4600 unfavourable Materials quantity variance $600 favourable Labor rate variance $600 favourable Labor efficiency variance $6600 unfavourable Variable overhead rate variance $360 unfavourable Variable overhead efficiency variance $450 unfavourable Total Variance $10810 Unfavourable