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:

	Budgeted		Actual
Sales (3,000 pools)	$	250,000	$	250,000
Variable expenses:
Variable cost of goods sold*		53,430		67,000
Variable selling expenses		26,000		26,000
Total variable expenses		79,430		93,000
Contribution margin		170,570		157,000
Fixed expenses:
Manufacturing overhead		67,000		67,000
Selling and administrative		92,000		92,000
Total fixed expenses		159,000		159,000
Net operating income (loss)	$	11,570	$	(2,000)

*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 Price or Rate		Standard Cost
Direct materials	4.2 pounds	$	2.80 per pound	$	11.76
Direct labor	0.5 hours	$	8.30 per hour		4.15
Variable manufacturing overhead	0.5 hours*	$	3.80 per hour		1.90
Total standard cost				$	17.81

*Based on machine-hours.

During June the plant produced 3,000 pools and incurred the following costs:

a.	Purchased 17,600 pounds of materials at a cost of $3.25 per pound.
b.	Used 12,400 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c.	Worked 2,100 direct labor-hours at a cost of $8.00 per hour.
d.	Incurred variable manufacturing overhead cost totaling $7,560 for the month. A total of 1,800 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: Material price variance Material quantity variance Labor rate variance Labor efficiency variance Variable overhead rate variance Variable overhead efficiency variance Summary of variances: Material price variance Material quantity variance Labor rate variance Labor efficiency variance Variable overhead rate variance Variable overhead efficiency variance Net variance $0 3. Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Materials price variance Labor efficiency variance Variable overhead efficiency variance Labor rate variance Variable overhead rate variance Materials quantity variance

Answer 1