Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2560490 • 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:
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:
Purchased 24,500 pounds of materials at a cost of $2.95 per pound.
Used 19,300 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $5,070 for the month. A total of 1,300 machine-hours was recorded.
Materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
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).)
Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)
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:
Explanation / Answer
Solution:
(1-a)
Direct Material Price Variance
Actual Price
$2.95
per pound
Standard Price (SP)
$2.50
per pound
Variance or Difference in Price
$0.45
per pound
x Actual Quantity PURCHASED
24500
pounds
Material Price Variance
$11,025
Unfavorable
Direct Material Quantity Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity
5000
Pools
x Allowed Standard Quantity Per Unit
3.9
pounds
Total Standard Quantity Allowed for actual production (SQAP)
19500
pounds
Actual Quantity USED (AQU)
19300
pounds
Variance or Difference in Quantity
200
pounds
x Standard Price (SP)
$2.50
per pound
Material Quantity Variance
$500
Favorable
1-b)
Labor Rate Variance
Actual Hourly Rate (AHR)
$7.70
Per Hour
Standard Hourly Rate (SHR)
$8.00
Per Hour
Variance or Difference in Rate
$0.30
Per Hour
x Actual Labor Hours worked
4600
Hours
Labor Rate Variance
$1,380
Favorable
Labor Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production/Activity
5000
Pools
x Allowed Standard Hours Per Unit
0.8
hours
Total Standard Hours Allowed for actual production (SHAP)
4000
hours
Actual Labor Hours Worked (AH)
4600
hours
Variance or Difference in Quantity (AH - SHAP)
600
hours
x Standard Hourly Rate (SHR)
$8
per hour
Labor Efficiency Variance
$4,800
Unfavorable
1-c)
Variable Overhead Rate Variance
Actual Hourly Variable Overhead Rate ($5,070 /1300)
3.90
Per MH
Standard Hourly Variable Overhead Rate (SV)
3.50
Per MH
Variance or Difference in Rate (AV - SV)
0.40
Per MH
x Actual Machine Hours
1300
Machine Hours
Variable Overhead Rate Variance
$520
Unfavorable
Variable Overhead Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
5,000
Pools
x Allowed Standard Hours Per Unit
0.2
hours
Total Standard Hours Allowed for actual production (SHAP)
1000
hours
Actual Machine Hours (AMH)
1300
Hours
Variance or Difference in Hours (AMH - SHAP)
300
hours
x Standard Hourly Variable Overhead Rate
$3.50
per hour
Variable Overhead Efficiency Variance
$1,050
Unfavorable
Part 2 – Summary of Variances
Summary of variances:
Material price variance
11025
Unfavorable
Material quantity variance
500
Favorable
Labor rate variance
1380
Favorable
Labor efficiency variance
4800
Unfavorable
Variable overhead rate variance
520
Unfavorable
Variable overhead efficiency variance
1050
Unfavorable
Net variance
15515
Unfavorable
Part 3 -- two most significant variances
Material Price Variance and Labor Efficiency Variance is the most significant variances.
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
(1-a)
Direct Material Price Variance
Actual Price
$2.95
per pound
Standard Price (SP)
$2.50
per pound
Variance or Difference in Price
$0.45
per pound
x Actual Quantity PURCHASED
24500
pounds
Material Price Variance
$11,025
Unfavorable
Direct Material Quantity Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity
5000
Pools
x Allowed Standard Quantity Per Unit
3.9
pounds
Total Standard Quantity Allowed for actual production (SQAP)
19500
pounds
Actual Quantity USED (AQU)
19300
pounds
Variance or Difference in Quantity
200
pounds
x Standard Price (SP)
$2.50
per pound
Material Quantity Variance
$500
Favorable
1-b)
Labor Rate Variance
Actual Hourly Rate (AHR)
$7.70
Per Hour
Standard Hourly Rate (SHR)
$8.00
Per Hour
Variance or Difference in Rate
$0.30
Per Hour
x Actual Labor Hours worked
4600
Hours
Labor Rate Variance
$1,380
Favorable
Labor Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production/Activity
5000
Pools
x Allowed Standard Hours Per Unit
0.8
hours
Total Standard Hours Allowed for actual production (SHAP)
4000
hours
Actual Labor Hours Worked (AH)
4600
hours
Variance or Difference in Quantity (AH - SHAP)
600
hours
x Standard Hourly Rate (SHR)
$8
per hour
Labor Efficiency Variance
$4,800
Unfavorable
1-c)
Variable Overhead Rate Variance
Actual Hourly Variable Overhead Rate ($5,070 /1300)
3.90
Per MH
Standard Hourly Variable Overhead Rate (SV)
3.50
Per MH
Variance or Difference in Rate (AV - SV)
0.40
Per MH
x Actual Machine Hours
1300
Machine Hours
Variable Overhead Rate Variance
$520
Unfavorable
Variable Overhead Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
5,000
Pools
x Allowed Standard Hours Per Unit
0.2
hours
Total Standard Hours Allowed for actual production (SHAP)
1000
hours
Actual Machine Hours (AMH)
1300
Hours
Variance or Difference in Hours (AMH - SHAP)
300
hours
x Standard Hourly Variable Overhead Rate
$3.50
per hour
Variable Overhead Efficiency Variance
$1,050
Unfavorable