Question
In: Accounting
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for...
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Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows: |
| Standard Quantity or Hours | Standard Price or Rate |
Standard Cost |
|||||
| Direct materials | 1.60 | kilograms | $5.00 | per kilogram | $ | 8.00 | |
| Direct labour | 0.90 | hours | $5.00 | per hour | 4.50 | ||
| Variable manufacturing overhead | 0.40 | machine-hours | $2.00 | per machine-hour | 0.80 | ||
| Total standard cost | $ | 13.30 | |||||
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The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 15,200 pools; the normal volume is 15,350 pools per month. Fixed costs are allocated using machine-hours. |
| Flexible Budgeted | Actual | |||
| Sales (15,200 pools) | $ | 456,000 | $ | 456,000 |
| Less: Variable expenses: | ||||
| Variable cost of goods sold* | 202,160 | 203,534 | ||
| Variable selling expenses | 20,300 | 20,300 | ||
| Total variable expenses | 222,460 | 223,834 | ||
| Contribution margin | 233,540 | 232,166 | ||
| Less: Fixed expenses: | ||||
| Manufacturing overhead | 132,000 | 132,000 | ||
| Selling and administrative | 85,120 | 85,120 | ||
| Total fixed expenses | 217,120 | 217,120 | ||
| Net income | $ | 16,420 | $ | 15,046 |
| *Contains direct materials, direct labour, and variable manufacturing overhead. |
|
Janet Dunn, the general manager of the Westwood Plant, wants to get things under control. She needs information about the operations in June since the income statement signalled that the problem could be due to the variable cost of goods sold. Dunn learns the following about operations and costs in June: |
| a. | 31,500 kilograms of materials were purchased at a cost of $4.10 per kilogram. |
| b. |
24,500 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignificant and can be ignored.) |
| c. | 11,900 direct labour-hours were worked at a cost of $8 per hour. |
| d. |
Variable manufacturing overhead cost totalling $14,184 for the month was incurred. A total of 5,910 machine-hours was recorded. |
| It is the company’s policy to close all variances to cost of goods sold on a monthly basis. | |
| Required: |
| 1. | Compute the following variances for June: |
| a. |
Direct materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) |
| b. |
Direct labour rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) |
| c. |
Variable overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) |
Solutions
Expert Solution
| Cost card | ||||||||
| Particulars | Standard cost for actual production | Particulars | Actual cost | |||||
| Quantity/hour | Rate($/KG/hr) | Amount | Quantity/hour | Rate($/KG/hr) | Amount | |||
| Direct Material | 24320 | 5 | $ 121,600 | Material purchased | 31500 | 4.1 | $ 129,150.00 | |
| (15200 pools * 1.6 KG) | Material used | 24500 | 4.1 | $ 100,450.00 | ||||
| Closing material | 7000 | $ 28,700.00 | ||||||
| Direct labour | 13680 | 5 | $ 68,400 | Direct labour | 11900 | 8 | $ 95,200.00 | |
| (15200 pools * 0.9 hr) | ||||||||
| Variable overhead | 6080 | 2 | $ 12,160 | Variable overhead | 5910 | 2.40 | $ 14,184.00 | |
| (15200 pools * 0.4 hr) | ($ 14184/5910 hr) | |||||||
| Total Standard manufacturing cost | $ 202,160 | |||||||
| 1 | Computation of variances for June: | |||||||
| a | Material Price variance = (Standard rate - Actual rate) * Actual quantity purchase | |||||||
| Material Price variance = ( 5 - 4.1 ) * 31500 = 28350 (Favorable) | ||||||||
| Material efficiency variance = (Standard Quantity - Actual Quantity used) * Standard rate | ||||||||
| Material efficiency variance = (24320-24500) * 5 = -900 (Unfavorable) | ||||||||
| b | Labor Rate variance = (Standard rate - Actual rate) * Actual hours | |||||||
| Labor Rate variance = ( 5-8 ) * 11900 = -35700 (Unfavorable) | ||||||||
| Labor efficiency variance = (Standard Hours - Actual Hours) * Standard rate | ||||||||
| Labor efficiency variance = (13680-11900) *5 = 8900 (Favorable) | ||||||||
| c | Variable Overhead Rate variance = (Standard rate - Actual rate) * Actual hours | |||||||
| Variable Overhead Rate variance = ( 2-2.4 ) * 5910 = -2364 (Unfavorable) | ||||||||
| Variable overhead efficiency variance = (Standard Hours - Actual Hours) * Standard rate | ||||||||
| Variable overhead efficiency variance = (6080-5910) * 2 = 340 (Favorable) | ||||||||
| 2 | Variances | Favourable/(Unfavourable) | ||||||
| MRV | $ 28,350.00 | |||||||
| MEV | $ (900.00) | |||||||
| LRV | $ (35,700.00) | |||||||
| LEV | $ 8,900.00 | |||||||
| VORV | $ (2,364.00) | |||||||
| VOEV | $ 340.00 | |||||||
| Net favourable/(unfavourable) variance | $ (1,374.00) | $ - | ||||||
 ekkarill92 answered 2 years agoRelated SolutionsMiller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for...
Miller Toy Company manufactures a plastic swimming pool at its
Westwood Plant. The standard cost for one pool is as follows:
Standard Quantity or Hours
Standard Price or
Rate
Standard
Cost
Direct materials
1.60
kilograms
$5.00
per kilogram
$
8.00
Direct labour
0.90
hours
$5.00
per hour
4.50
Variable manufacturing overhead
0.40
machine-hours
$2.00
per machine-hour
0.80
Total standard cost
$
13.30
The plant has been experiencing problems for some time, as is
shown by its June income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for...
Miller Toy Company manufactures a plastic swimming pool at its
Westwood Plant. The standard cost for one pool is as follows:
Standard Quantity or Hours
Standard Price or
Rate
Standard
Cost
Direct materials
1.20
kilograms
$4.00
per kilogram
$
4.80
Direct labour
0.80
hours
$6.00
per hour
4.80
Variable manufacturing overhead
0.40
machine-hours
$4.00
per machine-hour
1.60
Total standard cost
$
11.20
The plant has been experiencing problems for some time, as is
shown by its...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for...
Miller Toy Company manufactures a plastic swimming pool at its
Westwood Plant. The standard cost for one pool is as follows:
Standard Quantity or Hours
Standard Price or
Rate
Standard
Cost
Direct materials
1.20
kilograms
$4.00
per kilogram
$
4.80
Direct labour
0.80
hours
$6.00
per hour
4.80
Variable manufacturing overhead
0.40
machine-hours
$4.00
per machine-hour
1.60
Total standard cost
$
11.20
The plant has been experiencing problems for some time, as is
shown by its...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (3,000 pools)
$
179,000
$
179,000
Variable expenses:
Variable cost of goods sold*
33,390
44,540
Variable selling expenses
11,000
11,000
Total variable expenses
44,390
55,540
Contribution margin
134,610
123,460
Fixed expenses:
Manufacturing overhead
50,000
50,000
Selling and administrative
75,000
75,000
Total fixed expenses
125,000
125,000
Net operating income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (6,000
pools)
$
265,000
$
265,000
Variable expenses:
Variable cost of goods sold*
95,580
112,700
Variable selling expenses
14,000
14,000
Total variable expenses
109,580
126,700
Contribution margin
155,420
138,300
Fixed expenses:
Manufacturing overhead
63,000
63,000
Selling and administrative
78,000
78,000
Total fixed expenses
141,000
141,000
Net operating income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (5,000 pools)
$
235,000
$
235,000
Variable expenses:
Variable cost of goods sold*
71,350
86,370
Variable selling expenses
13,000
13,000
Total variable expenses
84,350
99,370
Contribution margin
150,650
135,630
Fixed expenses:
Manufacturing overhead
62,000
62,000
Selling and administrative
77,000
77,000
Total fixed expenses
139,000
139,000
Net operating income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (3,000 pools)
$
175,000
$
175,000
Variable expenses:
Variable cost of goods sold*
24,300
58,310
Variable selling expenses
10,000
10,000
Total variable expenses
34,300
68,310
Contribution margin
140,700
106,690
Fixed expenses:
Manufacturing overhead
50,000
50,000
Selling and administrative
65,000
65,000
Total fixed expenses
115,000
115,000
Net operating income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (7,000 pools)
$
235,000
$
235,000
Variable expenses:
Variable cost of goods sold*
78,540
96,420
Variable selling expenses
18,000
18,000
Total variable expenses
96,540
114,420
Contribution margin
138,460
120,580
Fixed expenses:
Manufacturing overhead
54,000
54,000
Selling and administrative
69,000
69,000
Total fixed expenses
123,000
123,000
Net operating income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (7,000
pools)
$
235,000
$
235,000
Variable expenses:
Variable cost of goods sold*
78,540
96,420
Variable selling expenses
18,000
18,000
Total variable expenses
96,540
114,420
Contribution margin
138,460
120,580
Fixed expenses:
Manufacturing overhead
54,000
54,000
Selling and administrative
69,000
69,000
Total fixed expenses
123,000
123,000
Net operating income...
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been...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:
Flexible Budget
Actual
Sales (4,000 pools)
$
239,000
$
239,000
Variable expenses:
Variable cost of goods sold*
57,680
70,390
Variable selling expenses
16,000
16,000
Total variable expenses
73,680
86,390
Contribution margin
165,320
152,610
Fixed expenses:
Manufacturing overhead
72,000
72,000
Selling and administrative
82,000
82,000
Total fixed expenses
154,000
154,000
Net operating income...
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