Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2556527 • 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 $ 225,000 $ 225,000 Sales (6,000 pools) Variable expenses: Variable cost of goods sold* Variable selling expenses Total variable expenses Contribution margin Fixed expenses: Manufacturing overhead Selling and administrative Total fixed expenses Net operating income (loss) 73,620 17,000 90,620 134, 380 88,700 17,000 105,700 119,300 53,000 68,000 121,000 $ 13,380 53,000 68,000 121,000 (1,700) $ *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 3.3 pounds 8.6 hours 0.5 hours* Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit RE Standard Price or Rate $ 2.30 per pound $ 6.30 per hour $ 1.80 per hour E Standard Cost $ 7.59 3.78 8.90 $ 12.27 A *Based on machine-hours.Explanation / Answer
1-a) Material price variance (Actual price - standard price )* AQ purchased (2.75-2.30)*24800 11160 U Materials Quantity variance (AQ used - SQ allowed)*Standard price (19600 - 6000*3.3)*2.30 460 F 1-b) Labor rate variance (Actual rate - standard rate)*Actual hours (6 -6.30)*4200 1260 F Labor Efficiency variance (Actual hours - standard hours allowed)* Std rate (4200 - 6000*.6)*6.3 3780 U 1-c) Variable overhead rate variance (Actual rate - standard rate)*Actual hours (2.2 - 1.80)*3,300 1320 U Variable overhead Efficiency variance (Actual hours - standard hours allowed)* Std rate (3300 - 6000*.5)*1.80 540 U 2) Net Variance 15080 U