Problem 8-18A Comprehensive Variance Analysis [L08-4, LO8-5, LO8-6] Miller Toy C
ID: 2570098 • Letter: P
Question
Problem 8-18A Comprehensive Variance Analysis [L08-4, LO8-5, LO8-6] 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: Budgeted Actual $ 179,000 $ 179,000 Sales (3,000 pools) Variable expenses Variable cost of goods sold* 33,390 11,000 44,540 Variable selling expenses Total variable expenses Contribution margin Fixed expenses 11,000 55,540 134,610 123,460 44,390 Manufacturing overhead Selling and administrative 50,000 50,000 75,000 75,000 125,000 25,000 $ 9,610 S 1,540) Total fixed expenses Net operating income (loss) 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 Qantity Sta Standard Price or Rate $2.00 per pound $6.60 per hour $2.10 per hour Standard or Hours 3.6 pounds 0.5 hours 0.3 hours* Cost Direct materials Direct labor Variable manufacturing overhead $7.20 3.30 0.63 Total standard cost $11.13 Based on machine-hours.Explanation / Answer
1a) Material price variance (actual price - standard price)*AQ purchased (2.45-2)*15800 7110 U Material efficiency variance (AQ used - std qty allowed)*standard rate (10,600 - 3000*3.6)*2 400 F b) labor rate variance (actual rate - standard rate )*actual hours (6.30 - 6.6)*2,100 630 F Direct labor Efficiency variance (actual hours - standard hours allowed)*standard rate (2,100 - 3000*.5)*6.6 3960 U c) Variable overhead rate variance (3000 - 1200*2.10) 480 U Variable overhead Efficiency variance (1200 - 3000*.3)*2.1 630 U 2) Summary of variances material price variance 7,110 U material qty variance 400 F labor rate variance 630 F labor efficiency variance 3,960 U variable overhead rate variance 480 U variable overhead efficiency variance 630 U net variance 11,150 U