Question

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 ActualSales (4,000 pools) $ 239,000 $ 239,000Variable expenses:Variable cost of goods sold* 57,680 70,390Variable selling expenses16,00016,000Total variable expenses73,68086,390Contribution margin165,320152,610Fixed expenses:Manufacturing overhead 72,000 72,000Selling and administrative 82,000 82,000Total fixed expenses154,000154,000Net operating income (loss) $ 11,320 $(1,390)*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:Standard Quantity or Hours Standard Priceor Rate Standard CostDirect materials 3.2 pounds $2.70per pound $ 8.64Direct labor 0.6 hours $7.30per hour 4.38Variable manufacturing overhead 0.5 hours* $2.80per hour1.40Total standard cost per unit $ 14.42*Based on machine-hours.During June the plant produced 4,000 pools and incurred the following costs:Purchased 17,800 pounds of materials at a cost of $3.15 per pound.Used 12,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)Worked 3,000 direct labor-hours at a cost of $7.00 per hour.Incurred variable manufacturing overhead cost totaling $7,360 for the month. A total of 2,300 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.

Answer 1

Answer :

1-a)	Material price variance
	(Actual price - standard price )* AQ purchased
	(3.15 -2.70)*17,800
	8010	U
	Materials Quantity variance
	(AQ used - SQ allowed)*Standard price
	(12,600 -4000*3.2)*2.7
	540	F
1-b)	Labor rate variance
	(Actual rate - standard rate)*Actual hours
	(7 - 7.30)*3000
	900	F
	Labor Efficiency variance
	(Actual hours - standard hours allowed)* Std rate
	(3000 - 4000*.6)*7.3
	4380	U
1-c)	Variable overhead rate variance
	(Actual rate - standard rate)*Actual machinehours
	(7,360 - 2300*2.8)
	920	U
	Variable overhead Efficiency variance
	(Actual hours - standard hours allowed)* Std rate
	(2300 - 4000*.5)*2.8
	840	U
2)	Net Variance	12,710	U
	Material price variance		8,010	U
	Material quantity variance		540	F
	labor rate variance			900	F
	labor efficiecny variance		4380	U
	variable overhead rate variance		920	U
	variable overhead efficiency variance	840	U
	net variance			12,710	U

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