Problem 9-18 Comprehensive Variance Analysis
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 |
Actual |
|||||
Sales (4,000 pools) |
$ |
180,000 |
$ |
180,000 |
|||
Variable expenses: |
|||||||
Variable cost of goods sold* |
37,720 |
49,210 |
|||||
Variable selling expenses |
15,000 |
15,000 |
|||||
Total variable expenses |
52,720 |
64,210 |
|||||
Contribution margin |
127,280 |
115,790 |
|||||
Fixed expenses: |
|||||||
Manufacturing overhead |
51,000 |
51,000 |
|||||
Selling and administrative |
66,000 |
66,000 |
|||||
Total fixed expenses |
117,000 |
117,000 |
|||||
Net operating income (loss) |
$ |
10,280 |
$ |
(1,210 |
) |
||
*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 |
Standard Cost |
||||
Direct materials |
3.1 pounds |
$ |
2.10 |
per pound |
$ |
6.51 |
Direct labor |
0.4 hours |
$ |
6.10 |
per hour |
2.44 |
|
Variable manufacturing overhead |
0.3 hours* |
$ |
1.60 |
per hour |
0.48 |
|
Total standard cost per unit |
$ |
9.43 |
||||
*Based on machine-hours.
During June the plant produced 4,000 pools and incurred the following costs:
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.
1. a Material Price Variance = (Actual Price - Standard Price) X Actual Quantity
= (2.55 - 2.10) X 17400 = 7,830
Material Quantity Variance = (Actual Unit - Standard Unit) X Standard Cost
= (12,200 - 12,400 ) X 2.10 = 420 (Refer W N below)
WN - Calculation of Standard Unit:
Standard Unit Required for manufacture of one swimming pool = 3.1 pounds
Therefore, Standard Unit require to manufacture of 4,000 pools = 3.1 X 4000 = 12,400
b. Labour Rate Variance = (Actual Cost - Expected Cost) X Actual Hours
( 5.8 - 6.1 ) X 2,200 = 660
Labour Efficiency Variance = (Actual Hours- Standard Hours) X Standard Hourly Rate
(2,200 - 1,600) X 6.1 = 3,660 (Refer WN below)
WN - Calculation of Standard Hours
Standard Hours required for manufacture of one pool = 0.4 hours
Therefore, standard hours require to manufacture of 4,000 pools = 4,000 X 0.4 = 1,600.
c. Variable Overhead Rate Variance = Actual Variable Overhead -
Standard Variable Overhead
where, Standard Variable Overhead = Actual Hour X Standard Rate per hour
= 3,000 - (1,500 X 1.6) = 600.
Variable Overhead Efficiency Variance = Standard variable overhead rate per hour X (Actual hours – Standard hours of actual production)
= 1.60 X (1,500 - 1,200) = 480
2.
Problem 9-18 Comprehensive Variance Analysis Miller Toy Company manufactures a plastic swimming pool at its Westwood...
Problem 9-18 Comprehensive Variance Analysis 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 Actual Sales (4,000 pools) $ 180,000 $ 180,000 Variable expenses: Variable cost of goods sold* 37,720 49,210 Variable selling expenses 15,000 15,000 Total variable expenses 52,720 64,210 Contribution margin 127,280 115,790 Fixed expenses: Manufacturing overhead 51,000 51,000 Selling and administrative 66,000 66,000 Total fixed...
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: Plexible Budget Actual $180,000 $180,000 Sales (4,000 pools) Variable expenses : Variable cost of goods sold Variable selling expenses Total variable expenses Contribution margin Pixed expenses Manufacturing overhead Selling and administrative Total fixed expenses Net operating income (loss) 37, 720 15,000 52,720 127,280 49,210 15,000 64,210 115,790 51,000 $1,000 66,000 66.000 117,000...
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