Janet Dunn, who has just been appointed general manager of the Westwood Plant, h
ID: 2480133 • Letter: J
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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 29,000 pounds of materials at a cost of $3.05 per pound.
Used 23,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Incurred variable manufacturing overhead cost totaling $8,400 for the month. A total of 2,100 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.)
Budgeted Actual Sales (6,000 pools) $ 273,000 $ 273,000 Variable expenses: Variable cost of goods sold* 83,460 102,050 Variable selling expenses 24,000 24,000 Total variable expenses 107,460 126,050 Contribution margin 165,540 146,950 Fixed expenses: Manufacturing overhead 65,000 65,000 Selling and administrative 90,000 90,000 Total fixed expenses 155,000 155,000 Net operating income (loss) $ 10,540 $ (8,050)Explanation / Answer
a) Material Price variance = ( Actual price - standard price ) * actual quantity = ( 3.05 - 2.60 ) * 29000 = 0.45 * 29000 = 13050 unfavourable Material quantity variance = ( standard quantity - actual quantity) * standard price = ( 6000 *4 - 23800) * 2.60 = ( 24000 - 23800) * 2.60 = 200 * 2.60 = 520 favourable b) Labor price variance = ( Actual rate -standard rate ) * actual hours = ( 7.80 - 8.10) * 2400 = 0.30 * 2400 = 720 favourable Labor quantity variance = ( standard hours - actual hours) * standard rate = ( 0.3*6000 - 2400) * 8.10 = ( 1800 - 2400 ) * 8.10 = 600 * 8.10 = 4860 unfavourable c) variable overhead rate variance = Actual variable overhead - Actual hours * standard variable overhead rate = 8400 - 2100 *3.60 = 8400 - 7560 = 840 unfavourable variable overhead efficiency variance = ( actual hours - standard hours) * standard rate = ( 2100 - 0.3 * 6000) * 3.60 = ( 2100 - 1800) * 3.60 = 300 * 3.60 = 1080 unfavourable 2) Material Price variance 13050 U Material quantity variance 520 F Total material variance 12530 U Labor price variance 720 F Labor quantity variance 4860 U Total labor variance 4140 U variable overhead rate variance 840 U Variable overhead efficiency variance 1080 U Total overhead variance 1920 U The two most significant variance are 1) Material price variance : as there is a significant variance between standard and actual price 2) Labor quantity variance : as there is a significant variance between standard and actual hours
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