Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. T
ID: 2586934 • 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.
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
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) Material price variance (Actual price - standard price )*AQ purchased (2.55 - 2.10)*17400 7830 U Material quantity variance (actual qty used - standard qty allowed)*SR (12,200 - 4000*3.10)*2.10 420 F 2) labor rate variance (Actual rate - standard rate)*actual hours (5.80 - 6.10)*2200 660 F Labor Efficiency variance (actual hours - standard hours)*standard rate (2,200 - 4000*.4)*6.10 3660 U 3) Variable overhead rate variance (Actual rate - standard rate)*actual hours (3000 - 1500*1.6) 600 U Variable overhead effiency variance (actual hours - standard hours)*standard rate (1500 - 4000*.3)*1.6 480 U 2) Summary Direct material rate variance 7,830 U direct material quantity variance 420 F direct labor rate variance 660 F direct labor efficiency variance 3660 U variable overhead rate variance 600 U variable overhead efficiency variance 480 U Net variance 11,490 U 3) Direct material rate variance direct labor efficiency variance