Question

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:

Sales (7,000 pools)	$	255,000		$	255,000
Variable expenses:
Variable cost of goods sold*		85,400			104,590
Variable selling expenses		15,000			15,000
Total variable expenses		100,400			119,590
Contribution margin		154,600			135,410
Fixed expenses:
Manufacturing overhead		64,000			64,000
Selling and administrative		79,000			79,000
Total fixed expenses		143,000			143,000
Net operating income (loss)	$	11,600		$	(7,590	)

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 or Rate	Standard Cost
Direct materials	4.0 pounds	$2.40 per pund	$9.60
Direct labor	.3 hours	$7.00 per hour	2.1
Variable manufacturing overhead	.2 hours*	$2.50 per hour	0.5
Total standard cost per unit			$12.20

*Based on machine-hours.

During June, the plant produced 7,000 pools and incurred the following costs:

1. Purchased 33,000 pounds of materials at a cost of $2.85 per pound.

2. Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

3. Worked 2,700 direct labor-hours at a cost of $6.70 per hour.

4. Incurred variable manufacturing overhead cost totaling $4,930 for the month. A total of 1,700 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:

Complete this question by entering your answers in the tabs below.

pute the lowly valialices for e, matérials 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 vari (Do not round your intermediate calculations. Indicate the effect of each variance by se unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive 1a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency variance 1c. Variable overhead rate variance Variable overhead efficiency variance K Required 1 Required 2

Answer 1

1)Material price variance = AQ (AP-SP)

                                = 27800(2.85 - 2.40)

                                 = 12510 U

Material quantity variance = SR(AQ-SQ)

                                  = 2.4[27800- (4*7000)

                                  = 2.4 [27800 - 28000]

                                   = -480 F

2)Labor rate variance =AH (AR-SR)

                                = 2700 (6.7 - 7)

                                 =- 810 F

Labor efficiency variance = SR [AH-SH]

                                  = 7 [2700 - (7000*.3)]

                                    = 7 [2700-2100]

                                   = 4200 U

3)Variable rate variance = AH [AVOR -SVOR]

                                = 4930 - [1700*2.5]

                               = 4930 - 4250

                              = 680 U

Variable efficiency variance = SVOR [AH-SH]

                                   =2.5 [1700 - (7000*.2)]

                                  = 2.5 * [1700 - 1400]

                                   = 2.5 * 300

                                  = 750 U

SUMMARY:

Material Price Variance	12510	(U)
Material Quantity Variance	480	(F)
Labor Rate Variance	810	(F)
Labor Efficiency Variance	4,200	(U)
Variable Overhead Rate Variance	680	(U)
Variable Overhead Efficiency Variance	750	(U)

NET VARIANCE = 16850 (U)