Question

value 6.00 points 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 $175,000 $175,000 Sales (3,000 pools) 24,300 58,310 Variable expenses: Variable cost of goods sold* Variable selling expenses 10,000 10,000 Total variable expenses 68,310 34,300 Contribution margin 140,700 106,690 50,000 50,000 Fixed expenses: Manufacturing overhead Selling and administrative 65,000 65,000 Total fixed expenses 115,000 115,000 Net operating income $ 25.700 $ (8,310) (loss) *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 or Rate Cost 3.0 pounds $2.00 per pound Direct materials Direct labor Variable manufacturing overhead $6.00 1.80 0.3 hours 0.2 hours* $6.00 per hour $1.50 per hour 0.30 Total standard cost $ 8.10 *Based on machine-hours. During June the plant produced 3,000 pools and incurred the following costs: a.Purchased 23,000 pounds of materials at a cost of $3.20 per pound. b.Used 8,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 2,000 direct labor-hours at a cost of $5.70 per hour. d. Incurred variable manufacturing overhead cost totaling $1,710 for the month. A total of 900 machine-hours was recorded.

Answer 1

1a) DIRECT MATERIAL quantity RATE per unit TOTAL 9000 2.00 18,000.00 (3000*3) STANDARD ACTUAL 8800 3.20 28,160.00 material price variance material QUANTITY variance (SP-AP) *AQ (2-3.2)*8800 (SQ-AQ)X SP (9000-8800)*2 10,560 U 400 F b) DIRECT LABOUR hours rate STANDARD 6.00 total 5,400.00 900 (3000*0.3) ACTUAL 2000 5.70 11,400.00 LABOUR RATE VARIANCE LABOUR EFFICIANCY VARIANCE (SR-ARXAH (6-5.7)*2000 (SH - AH) XSR (900-2000) *6 600 F 6,600 U c) VARIABLE MANUFACTURING OVERHEAD hours rate 600 113000*0.2) total 900.00 STANDARD 1.50 ACTUAL 900 1,710.00 1.90 (1710/900) VARIABL OVERHEAD RATE VARIANCE (SR-AR)XAH (1.5-1.9) *900 VARIABLE OVERHEAD EFFICIANCY VARIANCE (SH-AH) XSR (600-900)*1.5 360 U 450 U


2. summary of variances material price variance material quatity variance labor rate variance labor efficiency variance variable overhead rate variance variable overhead efficiency variance net variance 10560U 400 F 600 F 6600U 3600 | 450U 16970 U 3. two most significant variance material price variance labor efficiency variance AQ ACTUAL QTY SP STANDARD PRICE AP ACTUAL PRICE SQ STANDARD QTY SR STANDARD RATE AR ACTUAL RATE SH STANDARD HOURS AH ACTUAL HOURS