Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2581632 • 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: Flexible Budget $675,000 Actual $675,000 Sales (15,000 pools) Variable expenses 435,000 20,000 455,000 220,000 461,890 20,000 481,890 193,110 Variable cost of goods sold Variable selling expenses Total variable expenses Contribution margin Fixed expenses 130,000 84,000 214,000 $(20,890 Manufacturing overhead Selling and administrative 130,000 84,000 214,000 $6,000 lotal fixed expenses Net operating income (loss) Contains direct materials, direct labor, and variable manufacturing overheadExplanation / Answer
1.
Material Price Variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price) =
(60000×4.95) - (60000×5) = 3000 Favorable
Material Quantity Variance = (Actual quantity used × Standard price) – (Standard quantity allowed × Standard price) = (49200×5) - (45000×5) = 21000 Adverse
Labor Rate Variance = (Actual hours worked × Actual rate) – (Actual hours worked × Standard rate) = (11800×17) - (11800×16) = 11800 Adverse
Labor Efficiency Variance = (Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate) = (11800×16) - (12000×16) = 3200 Favorable
Variable Overhead Efficiency Variance = (Actual hours worked × Standard variable overhead rate) – (Standard hours allowed × Standard variable overhead rate) = (11800×3) - (12000×3) = 600 Favorable
3.
Material Quantity Variance and Labor Rate variance are two most significant Variances.
Possible causes for variances are as follows: