Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2555838 • 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:
10,000
104,000
136,000
125,000
(7,470
*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:
2.50
6.50
2.00
0.40
*Based on machine-hours.
During June, the plant produced 8,000 pools and incurred the following costs:
Purchased 33,000 pounds of materials at a cost of $2.95 per pound.
Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 3,800 direct labor-hours at a cost of $6.20 per hour.
Incurred variable manufacturing overhead cost totaling $4,560 for the month. A total of 1,900 machine-hours was recorded.
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
a. Materials price and quantity variances.
b. Labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.
1a. Compute the following variances for June, materials price and quantity variances.
1b. Compute the following variances for June, labor rate and efficiency variances.
1c. Compute the following variances for June, 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). Input all amounts as positive values.)
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Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
Flexible Budget Actual Sales (8,000 pools) $ 240,000 $ 240,000 Variable expenses: Variable cost of goods sold* 94,000 112,470 Variable selling expenses10,000
10,000 Total variable expenses104,000
122,470 Contribution margin136,000
117,530 Fixed expenses: Manufacturing overhead 55,000 55,000 Selling and administrative 70,000 70,000 Total fixed expenses125,000
125,000 Net operating income (loss) $ 11,000 $(7,470
)Explanation / Answer
a. Materials variances:
i. Materials price variance:
ii. Materials quantity variance:
b. Labor variances:
i. Direct labor rate variance:
ii. Direct labor efficiency variance:
c. Variable overhead variances:
i. Variable overhead rate variance
ii. Variable overhead efficiency variance
2. Summarize variances
3. Net Variance = 16,130 (U)
Actual Quantity of Material Purchase at Actual Price 97,350 (33,000 pounds x 2.95) Actual Quantity of Material Purchase at Standerd Price 82,500 (33,000 pounds x 2.50) Direct Material Price Variance 14,850 (A)