Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2558083 • 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:
13,000
84,350
150,650
139,000
(3,370
*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:
2.20
6.80
2.30
1.15
*Based on machine-hours.
During June, the plant produced 5,000 pools and incurred the following costs:
Purchased 24,000 pounds of materials at a cost of $2.65 per pound.
Used 18,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 4,100 direct labor-hours at a cost of $6.50 per hour.
Incurred variable manufacturing overhead cost totaling $7,560 for the month. A total of 2,800 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 (5,000 pools) $ 235,000 $ 235,000 Variable expenses: Variable cost of goods sold* 71,350 86,370 Variable selling expenses13,000
13,000 Total variable expenses84,350
99,370 Contribution margin150,650
135,630 Fixed expenses: Manufacturing overhead 62,000 62,000 Selling and administrative 77,000 77,000 Total fixed expenses139,000
139,000 Net operating income (loss) $ 11,650 $(3,370
)Explanation / Answer
Std material qty for actual output (5000*3.8): 19000 pounds Std price per pound: $2.20 per pound Actual Quantity used: 18800 pounds Aactual price per pound: $ 2.65 Materal price variance = Actual Qty (Std price-Actual price) 18800 pounds (2.20 - 2.65 ) = 8460 U Material Quantity Variance: Std price - (Std quantity -Actual Quantity) 2.20 (19000-18800) =440 F Std labour hours for actual output(5000*0.7) : 3500 hours Actual hours: 4100 hours Std rate per hour: $ 6.80 per hour Actual rate per hour: $ 6.50 per hour Labour rate variance: Actual hours (Std rate-Actual rate) 4100 ( 6.80-6.50 ) = 1230 F Llabour Efficiency Variance = Std rate (Std hours-Actual Hours) 6.80 ( 3500-4100) = 4080 U Std variable OH rate per hour: 2.30 per hour Std MH allowed: 2500 MH Actual MH hours used: 2800 MH Actual OH rate per hour (7560/2800) = 2.70 per hour Variable OH rate variance: Actual MH (Std rate-Actual rate) 2800 ( 2.30-2.70) = 1120 U Variable OH Efficiency Variance = Std rate (Std Hours-Actual Hhours) 2.30 (2500-2800) = 690 U Material Price variance -8460 U Material Qty variance 440 F Labour rate variance 1230 F Labour Efficiency Variance -4080 U Variable OH rate variance -1120 U variable OH efficiency Variance -690 U Net variance -12680 U