Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2578320 • 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:
10,000
34,300
140,700
115,000
(8,310
*Contains direct materials, direct labor, and variable manufacturing overhead.
anet 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:
2.00
6.00
1.50
0.30
*Based on machine-hours.
During June, the plant produced 3,000 pools and incurred the following costs:
Purchased 23,000 pounds of materials at a cost of $3.20 per pound.
Used 8,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 2,000 direct labor-hours at a cost of $5.70 per hour.
Incurred variable manufacturing overhead cost totaling $1,710 for the month. A total of 900 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 (3,000 pools) $ 175,000 $ 175,000 Variable expenses: Variable cost of goods sold* 24,300 58,310 Variable selling expenses10,000
10,000 Total variable expenses34,300
68,310 Contribution margin140,700
106,690 Fixed expenses: Manufacturing overhead 50,000 50,000 Selling and administrative 65,000 65,000 Total fixed expenses115,000
115,000 Net operating income (loss) $ 25,700 $(8,310
) Required 1 Required 2 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.) Show less 1a. Material price variance Material quantity variance b. Labor rate variance Labor efficiency variance 1c. Variable overhead rate variance Variable overhead efficiency varianceExplanation / Answer
1. Material Price Variance = (Standard rate per pound - Actual Rate) x Actual units purchased
Standard rate per pound = $2
Actual Rate per pound = $3.20
Actual Units = 23,000
Material Price Variance = (2 - 3.2) x 23,000 = $27,600 Unfavorable
Material Quantity Variance = (Standard RM required for actual output - Actual unit of RM used) x Standard rate per pound
Standard RM required for actual output = 3,000 pools x 3 pounds = 9,000 pound
Actual used in production = 8,800 pounds
Material Quantity Variance = (9,000 - 8,800) x $2 per pound = $400 Favorable
b. Labour Rate Variance = (Standard Rate - Actual Rate) x Actual labor hours used
Standard Rate = $6 per hour
Actual Rate = $5.70 per hour
Actual Hours worked = 2,000
Labor Rate Variance = (6 - 5.70) x 2,000 = $600 Favorable
Labour Efficiency Variance = (Standard Hours required for actual output - Actual Hours worked) x Standard Rate per hour
Standard hours for actual output = 3,000 pools x 0.3 = 900 hours
Actual hours worked = 2,000 hours
Standard Rate = $6 per hour
Labor efficiency variance = (900 - 2,000) x$6 per hour = $6,600 Unfavorable
c. Variable overhead rate variance = (Standard Rate per hour - Actual rate) x Actual hours
Standard Rate = $1.50 per hour
Actual Rate = $1,710 / 900 hours = $1.9 per hour
Actual Hours = 900 hours
Variable Rate Variance = (1.50 - 1.90) x 900 hours = $360 Unfavorable
Variable Efficiency Variance = (Standard hours for actual output - Actual hours) x Standard Rate per hour
Standard Hours = 3,000 pools x 0.2 hours = 600 hours
Actual hours = 900 hours
Variable Efficiency Variance = (600 - 900) x 1.50 per hour = $450 Unfavorable