Question

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 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.

4.	Compute the fixed overhead cost variances. (Round intermediate calculation to 2 decimal places. Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Fixed Overhead Volume Variance= ?

Answer 1

Answer for 1 to 3

Summary of Answer
Material
Material price variance	28,350	Favorable
Material quantity variance	900	Unfavorable
Labor
Labor rate variance	35,700	Unfavorable
Labor efficiency variance	8,900	Favorable
Variable Overhead
Variable overhead rate variance	2,364	Unfavorable
Variable overhead efficiency variance	340	Favorable
Net Variance	1,374	Unfavorable

Material price variance	$ (28,350)
Material quantity variance	$          900
Labor rate variance	$    35,700
Labor efficiency variance	$    (8,900)
Variable overhead rate variance	$       2,364
Variable overhead efficiency variance	$        (340)
Net Variance	$       1,374
Indicate	Unfavorable
Alternative method
Actual Variable cost of goods sold	203,534
Less: Flexible Variable cost of goods sold	202,160
Net Variance	$       1,374
Indicate	Unfavorable

Part 1

	Minus sign indicate Favorable variance.
	Measure	kilogram
	Standard price per kilogram	$            5.00
	Actual price per kilogram	$            4.10
1.6*15200	Standard quantity in kilograms	24320
	Actual quantity purchased in kilograms	31500
	Actual quantity used in kilograms	24500
	Actual price per kilogram	4.10
Less	Standard price per kilogram	-5.00
	Difference	-0.90
Multiply	Actual quantity purchased in kilograms	31500
	Material price variance	$     (28,350)
	Indicate	Favorable
	Actual quantity used in kilograms	24500
Less	Standard quantity in kilograms	-24320
	Difference	180
Multiply	Standard price per kilogram	5.00
	Material quantity variance	$              900
	Indicate	Unfavorable

Part 2

	Minus sign indicate Favorable variance.
	Measure	Hour
	Standard rate per Hour	$              5.00
	Actual rate per Hour	$              8.00
0.90*15200	Standard labor Hours	13680
	Actual labor Hours	11900
	Actual rate per Hour	8.00
Less	Standard rate per Hour	-5.00
	Difference	3.00
Multiply	Actual labor Hours	11900
	Labor rate variance	$          35,700
	Indicate	Unfavorable
	Actual labor Hours	11900
Less	Standard labor Hours	-13680
	Difference	-1780
Multiply	Standard rate per Hour	5.00
	Labor efficiency variance	$          (8,900)
	Indicate	Favorable

Part 3

	Minus sign indicate Favorable variance.
	Measure	Machine hour
	Standard variable overhead rate per Machine hour	$                2.00
14184/5910	Actual variable overhead rate per Machine hour	$                2.40
0.4*15200	Standard Machine hours	6080
	Actual Machine hours	5910
	Actual variable overhead rate per Machine hour	2.40
Less	Standard variable overhead rate per Machine hour	-2.00
	Difference	0.40
Multiply	Actual Machine hours	5910
	Variable overhead rate variance	$              2,364
	Indicate	Unfavorable
	Actual Machine hours	5910
Less	Standard Machine hours	-6080
	Difference	-170
Multiply	Standard variable overhead rate per Machine hour	2.00
	Variable overhead efficiency variance	$               (340)
	Indicate	Favorable

Part 4

Overhead rate =( Budgeted Fixed Overheads / Budgeted units)
Budgeted Fixed Overhead Rate (132000/15350)	$           8.60
Budgeted Fixed Overheads	132000
Less: Applied Fixed Overhead (8.6*15200)	130720
Fixed Overhead Volume Variance	$         1,280
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