Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2572977 • 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 Sales (6,000 pools) S 225,000 $225,000 Vanable expenses: Variable cost of goods sold73,620 Variable selling expenses 17,00017,000 90,620 105,700 134,380119,300 Total variable expenses Fixed expenses Manufacturing overhead Selling and administrative 53,00053,000 68,00068,000 121,000 121,000 s 13,380 $ (1.700) 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 reiewing 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 Standard Price Standard or Rate Cost Direct materials Direct labor Variable manufacturing overhead 0.5 hours" Total standard cost or Hours 3.3 pounds 0.6 hours $2.30 per pound S 7.59 3.78 0.90 $6.30 per hour $1 80 per hour S 12 27 Based on machine-hours During June the plant produced 6,000 pocls and incurred the following costs a Purchased 24,800 pounds of materials at a cost of $2.75 per pound b Used 19,600 pounds of materials in production. (Finished goods and work in process inventories are insignficant and can be ignored ) c Worked 4.200 direct labor hours at a cost of $6.00 per hour d Incurred variable manufacturing overhead cost totaling $7,260 for the month. A total of 3,300 machine- hours was recorded t is the company's policy to close all variances to cost of goods sold on a monthly basis Type here to search DeELExplanation / Answer
1) Material price variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U Material price variance = (AP-SP)*AQ AP = Actual price per unit = $2.75 SP = Standard price per unit = $2.3 AQ = Actual quantity consumed= 19600 F= Favourable U = Unfavourable Material price variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U 2.75 2.3 -0.45 19600 -8820 U Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U Material quantity variance = (AQ-SQ)*SP AQ = Actual quantity consumed= 19600 SQ = Standard quantity = 6000*3.3 = 19800 SP = Standard price per unit = $2.3 F= Favourable U = Unfavourable Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U 19600 19800 200 2.3 460 F Labor Rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U Labor Rate variance = (AR-SR)*AH AR = Actual Rate per hour = $6 SR = Standard Rate per hour = $6.3 AH = Actual hours = 4200 F= Favourable U = Unfavourable Labor Rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U 6 6.3 0.3 4200 1260 F Labor Efficiency variance AH (a) SH (b) Variance (c=b-a) AR (d) Total variance (e=c*d) F/U Labor Efficiency variance = (AH-SH)*AR AH = Actual hours = 4200 SH = Standard Hours = 6000*0.6 = 3600 SR = Standard Rate per hour = $6.3 F= Favourable U = Unfavourable Labor Efficiency variance AH (a) SH (b) Variance (c=b-a) SR (d) Total variance (e=c*d) F/U 4200 3600 -600 6.3 -3780 U VOH rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U VOH rate variance = (AR-SR)*AH AR = Actual Rate per hour = $7260/3300 = $2.2 SR = Standard Rate per hour = $1.8 AH = Actual hours = 3300 F= Favourable U = Unfavourable VOH rate variance AR (a) SR (b) Variance (c=b-a) AH (d) Total variance (e=c*d) F/U 2.2 1.8 -0.4 3300 -1320 U VOH efficiency variance AH (a) SH (b) Variance (c=b-a) SR (d) Total variance (e=c*d) F/U VOH efficiency variance = (AH-SH)*SR AH = Actual hours = 3300 SH = Standard Hours = 6000*0.5 = 3000 SR = Standard Rate per hour = $1.8 F= Favourable U = Unfavourable VOH efficiency variance AH (a) SH (b) Variance (c=b-a) Price (d) Total variance (e=c*d) F/U 3300 3000 -300 1.8 -540 U 2) Material price variance 8820 U Material quantity variance 460 F Labor Rate variance 1260 F Labor Efficiency variance 3780 U VOH rate variance 1320 U VOH efficiency variance 540 U Net variance 12740 U 3) Material price variance Labor Efficiency variance