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PROBLEM 11-15 Comprehensive Variance Analysis (L011-1, L011-2, L011-3] 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:

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Answer 1

Given Bugdeted Actual 450000 450000 Sales(15000 pools) Variable Expenses - Variable cost of good sold Variable selling 180000 20000 200000 196290 20000 216290 Contribution margin 250000 233710 Fixed Expense Manufacturing Overhead Selling & admin 130000 84000 214000 130000 84000 214000 Net operating Income 36000 19710 Standard Cost Particulars Direct Material Direct labour Variable Manufacturing Overhead Standard qty Or Hours 3 pound 0.8 hours 0.4 hours Standard Price or Rate 2 Per pound 6 Per Hours 3 Per Hours 6 4.8 1.2 12 Actual Production Purchase Direct Material Used Direct Material 15000 Pools 60000 Pound @ 1.95 Per Pound 49200

Direct Labour Variable Manufacturing Overhead 11800 Hours @ 7 per hours 5900 machine Hours 18290 3.1 Per hour Rate Answer -1 (a,b,c) 1 Material Price Variance = Actual Qty* (Standard Price - Actual price) 2 Material Quanity Ratio = (Standard Price ) * (Standard Qty - Actual Quantity) 3 Labour Cost Variance = (Standard Hours * Standard Rate) - (Actual Hours * Actual Rate) 4 Labour Efficiency Variance = (Standard Rate) * (Standard Hours -* Actual hours) 5 Variable Overhead Cost Variance = (Standard Rate * Standard Hours) -* (Actual Rate * Actual Hours) 6 Variable Overhead Efficency Varaiance = (Standard Rate) * (Standard Hours - Actual Hours) 60000* (2-1.95) 2*((15000*3)-49200) (15000*.8*6)-(11800*7) 6*((15000*.8) - 11800)) (.4*3*15000)-(18290) 3*((.4*15000)-5900) 3000 Favourable -8400 unfavourable -10600 unfavourable 1200 Favourable -290 unfavourable 300 Favourable Answer-2 Sum total of Variances -14790 Impact on company income statement The net effect of above calculated variances increase variable cost of goods sold by 14790 i.e.(1,96,290-1,80,000) Answer - 3 The two major variances calculated above are material quantity variance and labour cost variance, the possible reasons for both are as folllows a. Material Quantity variance - The probable reason for negative variance may be inefficient labour, poor quality raw material b. Labour cost variance - the probable reason may be inflation, or casual leave of regular labour