Problem 10-15 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Miller To

Question

Problem 10-15 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3]

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 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.

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).)

Material Price variance

Material quanity 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).)

Labor rate variance______

Labor efficency 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).)

Variable overhead rate varinace______

Variable overhead efficieny 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).)

Material price variance___

Material quanity variance____

Labor rate variance______

Labor efficiency variance______

Variable overhead rate varinace______

Variable overhead efficiency varinace______

NET VARIANCE___$

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 quantity (Standard price - Actual Price)

= 23800 (2.60 - 3.05) = 23800 (0.45) = 10710 U

2. Material Quantity variance = Standard rate (Standard Quantity - Actual Quantity)

= 2.60 (24000 - 23800) = 2.60 (200) = 520 F

3. Labour Rate variance = Actual Hour Worked (Standard rate - Actual Rate)

= 2400 (8.1 - 7.80) = 2400 (0.30) = 720 F

4. Labour Efficiency variance = Standard rate (Standard hour - Actual Hour)

= 8.1 (1800 - 2400) = 8.10 (600) = 4860 U

5. Variable overhead rate variance = Actual Hour (Standard rate - Actual Rate)

= 2100 (3.60 - 4) = 2100 (0.4) = 840 U

6. Variable overhead efficiency variance = Standard rate (Standard hour - Actual Hour)

= 3.6 (1800 - 2100) = 3.6 (300) = 1080 U

Summery of Variances Material price variance 10710 U Material quantity variance 520 F Labour Rate variance 720 F Labour Efficiency variance 4860 U Variable overhead rate variance 840 U Variable overhead efficiency variance 1080 U Total 16250 U

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