Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2559045 • 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:
19,000
98,240
166,760
152,000
(3,525
*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:
2.10
7.60
3.10
0.93
*Based on machine-hours.
During June, the plant produced 7,000 pools and incurred the following costs:
Purchased 29,500 pounds of materials at a cost of $2.55 per pound.
Used 24,300 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 3,400 direct labor-hours at a cost of $7.30 per hour.
Incurred variable manufacturing overhead cost totaling $8,400 for the month. A total of 2,400 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.
Flexible Budget Actual Sales (7,000 pools) $ 265,000 $ 265,000 Variable expenses: Variable cost of goods sold* 79,240 97,525 Variable selling expenses19,000
19,000 Total variable expenses98,240
116,525 Contribution margin166,760
148,475 Fixed expenses: Manufacturing overhead 67,000 67,000 Selling and administrative 85,000 85,000 Total fixed expenses152,000
152,000 Net operating income (loss) $ 14,760 $(3,525
)Explanation / Answer
1-a) Material price variance (Actual price - standard price )* AQ purchased (2.55 - 2.10)*29500 13275 U Materials Quantity variance (AQ used - SQ allowed)*Standard price (24300 - 7000*3.5)*2.10 420 F 1-b) Labor rate variance (Actual rate - standard rate)*Actual hours (7.30 - 7.60)*3400 1020 F Labor Efficiency variance (Actual hours - standard hours allowed)* Std rate (3,400 - 7000*.4)*7.6 4560 U 1-c) Variable overhead rate variance (Actual rate - standard rate)*Actual hours (3.5 - 3.10)*2400 960 U Variable overhead Efficiency variance (Actual hours - standard hours allowed)* Std rate (2400 - 7000*.3)*3.1 930 U 2) Net Variance 18285 U