Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2555019 • 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 5 200,000 200,000 Sales (5,000 pools) Variable expenses: Variable cost of goods sold Variable selling expenses 54,100 67,330 16,000 16,000 Total variable expenses 70,100 83,330 Contribution margin 129,900 11,670 Fixed expenses: 52,000 Manufacturing overhead Selling and administrative 52,000 67,000 67,000 119,000 11,000 5 10,900 (2,330) Total fixed expenses Net operating income (loss) 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 Direct materials Direct labor Variable manufacturing overhead or Hours 3.2 pounds 0.5 hours 0.4 hours Standard Price or Rate 52.20 per pound 56.20 per hour 51.70 per hour Standard Cost 5 7.04 0.88 Total standard cost 5 10.82 Based on machine-hours During June the plant produced 5,000 pools and incurred the following costs: a. Purchased 21,000 pounds of materials at a cost of $2.85 per pound. b. Used 15,800 pounds of materials in production. Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,100 direct labor-hours at a cost of 55.90 per hour d. Incurred variable manufacturing overhead cost totaling $4,830 for the month. A total of 2,300 machine- hours was recorded It is the company's policy to close all variances to cost of goods sold on a monthly basis. Requirec 1. Compute the following variances for June a. Materials price and quantity variances. (lndicate 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 varianceExplanation / Answer
1.
a. Material price variance = Actual quantity * (standard price - actual price)
= 15800 pounds * ($2.20 - $2.65)
= ($7110) unfavourable.
Material quantity variance = Standard price * (standard quantity - actual quantity)
= $2.20 * ((5000 * 3.2 pounds) - 15800 pounds)
= $2.20 * ( 16000 pounds - 15800 pounds)
= $2.20 * (200 pounds)
= ($440) Favourable.
Labor rate variance = Actual hours * (Standard rate - Actual rate)
= 3100 hours * ($6.20 - $5.90)
= $930 favourable.
Labor efficiency variance = Standard rate * (standard hours - actual hours)
= $6.20 * ((5000 * 0.5) - 3100 hours)
= $6.20 * (2500 hours - 3100 hours)
= ($3720) unfavourable.
Variable overhead rate variance = actual hours * (standard rate - actual rate)
= 2300 hours * ($1.70 - ($4830 / 2300 hours)
= 2300 hours * ($1.70 - $2.1)
= 2300 hours * (0.4)
= ($920) unfavorable.
Variable overhead efficiency variance = (standard hours - actual hours) * standard rate
= ((5000 * $0.4) - 2300 hours) * $1.70)
= ($510)unfavourable.