Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2500351 • 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) $ 265,000 $ 265,000 Variable expenses: Variable cost of goods sold* 79,240 97,525 Variable selling expenses 19,000 19,000 Total variable expenses 98,240 116,525 Contribution margin 166,760 148,475 Fixed expenses: Manufacturing overhead 67,000 67,000 Selling and administrative 85,000 85,000 Total fixed expenses 152,000 152,000 Net operating income (loss) $ 14,760 $ (3,525) *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 3.5 pounds $ 2.10 per pound $ 7.35 Direct labor 0.4 hours $ 7.60 per hour 3.04 Variable manufacturing overhead 0.3 hours* $ 3.10 per hour 0.93 Total standard cost $ 11.32 *Based on machine-hours. During June the plant produced 7,000 pools and incurred the following costs: a. Purchased 29,500 pounds of materials at a cost of $2.55 per pound. b. Used 24,300 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,400 direct labor-hours at a cost of $7.30 per hour. d. Incurred variable manufacturing overhead cost totaling $8,400 for the month. A total of 2,400 machine-hours was recorded. It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
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).)
1. Compute the following variances for June:Explanation / Answer
Material Variance 1 2 3 SP*SQ AP*AQ AQ*SP 2.1*3.5*7000 24300*2.55 24300*2.1 51450.00 61965.00 51030.00 Material Cost Variance Material Price Variance Material Usage Variancce (1-2) (3-2) (1-3) -10515.00 -10935.00 420.00 U U F Labour Variance 1 2 3 SH*SR AH*AR AH*SR 7.6*0.4*7000 3400*7.3 3400*7.6 21280.00 24820.00 25840.00 Labour Cost Variance Labour Rate Variance Labour Efficiency Variancce (1-2) (3-2) (1-3) -3540.00 1020.00 -4560.00 U F U Variable Overhead Variance 1 2 3 SH*SR AH*AR AH*SR 3.1*.3*7000 8400.00 3400*.3 6510.00 8400.00 1020.00 Variable Cost Variance Expenditure Variance Efficiency Variancce (1-2) (3-2) (1-3) -1890.00 -7380.00 5490.00 U U F Budgeted Variance Actual Material 51450.00 Price Variance 10935U Usage Variance 420F 61965.00 Labour 21280.00 Rate Variance 1020F Efficiency Variance 4560U 24820.00 Variable Overhead 6510.00 Expenditure Variance 7380U Efficiency Variance 5490F 8400.00