Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2586325 • 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 17,400 pounds of materials at a cost of $2.55 per pound.
Used 12,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $3,000 for the month. A total of 1,500 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
1)
a)Material price varience (MPV) = standard price - actual price × actual quantity
*)standard price = 2.10
*)actual price = 2.55
*)actual quantity = 17400
MPV =2.10-2.55×17400= 7830 U
Material quantity varience (MQV) = standard quantity - actual quantity × standard price
*)standard quantity = standard material required for each output × actual output
material per outpot = 3.1
actual output =4000
=3.10× 4000 =12400
*)actual quantity = 12200
*)standard price = 2.10
MQV = 12400-12200 × 2.10 = 420 F
Total material varience = price varience +quantity varience
=price varience = 7830 U
quantity varience = 420 F
= -7830 +420 = 7410 U
b)
Labour rate varience (LRV) = standard rate - actual rate × actual hours
*)standard rate =6.10
*)actual rate = 5.80
*)actual hours = 2200
LRV = 6.10-5.80×2200 = 660 F
Labour efficiency varience (LEV) = standard hour - actual hour × standard rate
*)standard hour = hour per unit of output × actual out put
hour per unit of output = .4
actual output = 4000
standard hour = .4×4000 = 1600
*) actual hours = 2200
*)standard rate = 6.10
LEV = 1600-2200 × 6.10 = 3660 U
total labour varience = rate varience + efficiency varience
rate varience = 660 F
efficiency varience = 3660 U
labour varience =660+(-3660)= 3000 U
c)
Variable Overhead rate varience (VORV) = standard rate - actual rate × actual hours
*)standard rate =1.60
*)actual rate = 3000÷1500 =2
*)actual hours = 1500
VORV = 1.60 - 2 × 1500 = 600 U
Variable overhead efficiency variance (VOEV) = standard hour - actual hour × standard rate
*)standard hour = hour required per output × actual output
hour required per output = .3
actual output = 4000
standard hour = .3×4000 =1200
*)actual hour = 1500
*)standard rate = 1.60
VOEV = 1200-1500 × 1.60 = 480 U
Total variable overhead varience = rate varience + efficiency varience
rate varience = 600 U
efficience varience = 480 U
Variable overhead varience = -600+(-480) = -1080 U
2)
Net overall varience = material varience + labour varience + variable overhead varience
*) material varience = 7410 U
*) labour varience = 3000 U
*)variable overhead varience = 1080 U
=(-7410)+(-3000)+(-1080)=11490 U
( from the income statement we can find the varience in total = standard variable cost of goods sold - actual variable cost of goods sold
standard =37720
actual =49210
=37720 -49210 = - 11490 U
3)
*)Material price varience
*)labour efficiency varience
they shows huge amount of variencs when compared with other variences.