Miller Toy Company manufactures a plastic swimming pool at i

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:

16,000

104,960

160,040

145,000

(2,490

*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:

2.50

7.10

2.60

0.78

*Based on machine-hours.

During June, the plant produced 8,000 pools and incurred the following costs:

Purchased 29,000 pounds of materials at a cost of $2.95 per pound.

Used 23,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

Worked 3,800 direct labor-hours at a cost of $6.80 per hour.

Incurred variable manufacturing overhead cost totaling $8,100 for the month. A total of 2,700 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 (8,000 pools)	$	265,000		$	265,000
Variable expenses:
Variable cost of goods sold*		88,960			106,490
Variable selling expenses		16,000			16,000
Total variable expenses		104,960			122,490
Contribution margin		160,040			142,510
Fixed expenses:
Manufacturing overhead		65,000			65,000
Selling and administrative		80,000			80,000
Total fixed expenses		145,000			145,000
Net operating income (loss)	$	15,040		$	(2,490	)

Required 1 Required 2 1a. Compute the following variances for June, materials price and quantity variances. 1b. Compute the following variances for June, labor rate and efficiency variances. 1c. Compute the following variances for June, variable overhead rate and efficiency variances. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting \"F\" for favorable, \"U\" for unfavorable, and \"None\" for no effect (i.e., zero variance). Input all amounts as positive values.) Show less 1a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency variance 1C.? Variable overhead rate variance Variable overhead efficiency variance

Solution

Material: Std qty allowed for actual output (8000*3): 24000 pounds Std price per pound: 2.50 per pound Actual qty Purchased: 29000 pounds Actual qty used:; 23800 pounds Actual price per pound: 2.95 Material price: Actual qty purchased (Std price-Actual price) 29000(2.50-2.95)= 13050 Unfav Material quantity = Std price (Std qty-Actyal ty used) 2.50 (24000-23800): 500 Fav Labour: Std hours allowed (8000*0.40): 3200 hours Std rate per hour: 7.10 per hour Actual hours used: 3800 hours Actual rate per hour: 6.80 per Labour hour Labour rate varinacce: Actual hours (Std rate-Actual rate) 3800 (7.10-6.80)= 1140 Fav Labour efficiency variance: Std rate (Std hours-Actual hours) 7.10 (3200-3800)= 4260 unfav Overheads: Std OH rate per hour: 2.60 per hour Actual OH rate per hour: (8100/2700): $ 3.00 per hour Variable OH rate variannce: Actual hours (Std OH rate-Actual OH rate) 3800 (2.60- 3.00) = 1520 Unfav Variable efficiency variiance: Std rate (Std hours-Actual hours 2.60 (3200-3800) = 1560 Unfav Total effect Material price 13050 U Material Quantity 500 F Labour rate 1140 F labor efficiency 4260 U OH rate variance 1520 U OH efficiency variance 1560 U Total effect 18750 U