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 for some time as shown by its June proit statement below Budgeted Actual 450,000 450,000 Sales (15,000 pools) Less variable expenses 180,000 20,000 200,000 250,000 196,830 20,000 216,830 233,170 Variable cost of goods sold* Variable selling expenses Total variable expenses Contribution margin Less fixed expenses: Manufacturing overhead Selling and administrative Total fixed expenses 130,000 84,000 214,000 36.000 130,000 84,000 214,000 19.170 Net protit *Contains direct materials, direct labour, 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 profit 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 or budget cost information per swimming pool Standard quantity Standard price or rate Standard cost 3.0 pounds 2.00 per pound 0.8 hours Direct materials Direct labour Variable manufacturing overhead 0.4 hours 3.00 per hour Total standard cost 6.00 4.80 1.20 12.00 6.00 per hour Based on machine hours

Solution

a) Direct Material Price Variance & Direct Material Quantity variance :-

i. Direct Material Price Variance =

It is the difference between the Standard Price and Actual Price for the Actual Quantity.

= [(SP-AP)*AQ]

Here

SP=standard price per unit

AP= actual price per unit

AQ=actual quantity of material consumed

.

= [(SP-AP)*AQ]

= [(2-1.95)*49200]

= 2460 Favorable .

ii.Direct Material Quantity variance=

It is the differebce between Standard Quantity specified for actual production and the Actual Quantity used , at Standard Price .

= [(SQ-AQ)*SP]

Here

SQ=standard Quantity

AQ=actual quantity of material consumed

SP=standard price per unit

.

= [(SQ-AQ)*SP]

=[(45000-49200)*2]

=(8400) Unfavorable

b) Direct Labour Rate Variance & Direct Labour Efficiency Variance:

i.Direct Labour Rate Variance=

It is the difference between standard rate per hour and actual rate , for actual hours .

= [(SR-AR)*AH]

Here

SR= Standard Rate per hour

AR= Actual Rate per hour

AH= Actual hours

.

= [(SR-AR)*AH]

=[(6-7)11800]

=(11800) Unfavorable

ii.Direct Labour Efficiency Variance=

It isthedifference between Standard hours for Actual production and Actual hours worked.

= [(SH-AH)*SR]

Here

SH= Standard hour for actual production

AH= Actual hours

SR= Standard Rate per hour

= [(SH-AH)*SR]

=[(12000-11800)*6]

=1200 Favorable

c) Variable Overhead Spending variance & Variable Overhead Efficiency variance=

i.Variable Overhead Spending variance =

It is the difference between budgeted variable overheads for actual hours and actual overheads incurred.

= (Budgeted Variable Overheads for actual hours) –(Actual Variable Overheads)

Here,

                   Standard Variable overhead Rate*Actual hours

.

= (SVohR*AH)-AVoh

=(3*5900)-18290

=17700-18290

=(590)Unfavorable

ii.Variable Overhead Efficiency variance =

It is difference between Standard variable Overhead and Budgeted Variable Overheads for Actual Hours.

=(SVohR*SH)-(SVohR*AH)

= [SvohR *(SH-AH)]

Here

SVohR=Standard Variable Overhead Rate

SH= Standard Machine Hours for production

AH= Actual Machine Hours for production

. Calculation for Standard Machine Hours

= SHper unit * no of units produced

= 0.4hr *15000

= 6000 hours

.

= [SvohR *(SH-AH)]

=[3*(6000-5900)]

= 1000 Favorable.