Chap 10 Problem . Miller Toy Company manufactures a plastic swimming pool at its
ID: 2594237 • Letter: C
Question
Chap 10 Problem .
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:
18,000
96,540
138,460
123,000
(2,420
*Contains direct materials, direct labor, and variable manufacturing overhead.
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:
2.40
6.40
1.90
1.14
*Based on machine-hours.
During June, the plant produced 7,000 pools and incurred the following costs:
Purchased 28,800 pounds of materials at a cost of $2.85 per pound.
Used 23,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 2,700 direct labor-hours at a cost of $6.10 per hour.
Incurred variable manufacturing overhead cost totaling $10,350 for the month. A total of 4,500 machine-hours was recorded.
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
a. Materials price and quantity variances.
b. Labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.
Flexible Budget Actual Sales (7,000 pools) $ 235,000 $ 235,000 Variable expenses: Variable cost of goods sold* 78,540 96,420 Variable selling expenses18,000
18,000 Total variable expenses96,540
114,420 Contribution margin138,460
120,580 Fixed expenses: Manufacturing overhead 54,000 54,000 Selling and administrative 69,000 69,000 Total fixed expenses123,000
123,000 Net operating income (loss) $ 15,460 $(2,420
)Explanation / Answer
1 Direct Material Variance Price variance=(SR-AR)*AQ -10620 Unfavourable Usage variance=(SQ-AQ)*SR 480 Favourable Total direct material variance -10140 Unfavourable 2 Direct labour variance Rate variance=(SR-AR)*AQ 810 Favourable Efficiency variance=(SQ-AQ)*SR -3840 Unfavourable Total direct labour variance -3030 Unfavourable 3 Variable overhaed variance Rate variance=(SR-AR)*AQ -1800 Unfavourable Efficiency variance=(SQ-AQ)*SR -570 Unfavourable Total variable overhead variance -2370 Unfavourable Material Variance Actual Cost Actual Rate Actual Quantity Standard Cost Standard Rate Standard Quantity 67260 2.85 23600 57120 2.4 23800 (23600*2.85) (23800*2.4) (7000*3.4) Labour Var Actual Cost Actual Rate Actual Quantity Standard Cost Standard Rate Standard Quantity 16470 6.1 2700 13440 6.4 2100 (2700*6.1) (2100*6.4) (7000*0.3) Variable overhead Var Actual Cost Actual Rate Actual Quantity Standard Cost Standard Rate Standard Quantity 10350 2.3 4500 7980 1.9 4200 (10350/4500) (4200*1.9) (7000*0.6) Summary 1 Direct Material Variance Price variance=(SR-AR)*AQ -10620 Unfavourable Usage variance=(SQ-AQ)*SR 480 Favourable Total direct material variance -10140 Unfavourable 2 Direct labour variance Rate variance=(SR-AR)*AQ 810 Favourable Efficiency variance=(SQ-AQ)*SR -3840 Unfavourable Total direct labour variance -3030 Unfavourable 3 Variable overhaed variance Rate variance=(SR-AR)*AQ -1800 Unfavourable Efficiency variance=(SQ-AQ)*SR -570 Unfavourable Total variable overhead variance -2370 Unfavourable Overall variance -15540 Unfavourable
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