Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2543960 • 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: Flexible Actual Budget Sales (4,000 pools) Variable expenses: $180,000 $180,000 49,210 15,000 15,000 64,210 127,280 115,790 Variable cost of goods sold* 37,720 Variable selling expenses Total variable expenses Contribution margin Fixed expenses: 52, 720 Manufacturing overhead 51,000 51,000 66,000 117,000 117,000 Selling and administrative 66,000 Total fixed expenses Net operating income (loss) 10,280 $ 1,210) 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 3.1 pounds Standard Price Standard or Rate Cost Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit 2.10 per pound 6.51 2.44 0.48 $ 9.43 6.10 per hour 0.3 hours* 1.60 per hour 0.4 hoursExplanation / Answer
1-a) Material price variance (Actual price - standard price )* AQ purchased (2.55-2.10)*17,400 7830 U Materials Quantity variance (AQ used - SQ allowed)*Standard price (12,200 - 4000*3.1)*2.10 420 F 1-b) Labor rate variance (Actual rate - standard rate)*Actual hours (5.80 - 6.10)*2,200 660 F Labor Efficiency variance (Actual hours - standard hours allowed)* Std rate (2,200 - 4000*.4)*6.1 3660 U 1-c) Variable overhead rate variance (Actual rate - standard rate)*Actual hours (2-1.60)*1500 600 U Variable overhead Efficiency variance (Actual hours - standard hours allowed)* Std rate (1500 - 4000*.3)*1.6 480 U 2) Net Variance 11490 U