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: Flexible Actual Budget $ 272,000 $ 272,000 Sales (5,000 pools) Variable expenses: Variable cost of goods sold* Variable selling expenses Total variable expenses Contribution margin Fixed expenses: Manufacturing overhead Selling and administrative Total fixed expenses Net operating income (loss) 84,250 23,000 107,250 164,750 99,765 23,000 122,765 149,235 64,000 89,000 153,000 11,750 $ 64,000 89,000 153,000 (3,765) $ * Contains direct materials, direct labor, and variable manufacturing overhead.

Answer 1

In order to find the reasons for difference between Budgeted and Actual variable cost of good sold we have to compute the material, labour and variable overhead variances.

Solution to 1a

Given That,

Standard Price of Material = $2.5/ pound

Actual Price of Material = $2.95/pound

Standard Quantity of material for 5000 pools = 5,000 * 3.9 pound material/ pool = 19,500 pound

Actual Quantity of material for 5000 pools = 19,300 pound

Material Price Variance = Actual Quantity (Standard Price - Actual Price)

= 19300 (2.5 -2.95)

= (8,685)

Material Quantity Variance = Standard Price (Standard Quantity - Actual Quantity)

= 2.2 (19,500 - 19,300)

= 500

Solution to 1b

Given That,

Actual Direct Lahour Hours Rate = $7.7

Standard Direct Lahour Hours Rate = $8

Actual Direct Labour Hours = 4,600

Standard Direct Labour Hours for 5000 pool = 5,000 * standard direct labour hours for 1 pool

= 5,000 * 0.8

= 4,600

Labour Rate Variance = Actual Hours (Standard Rate - Actual Rate)

= 4600 (8 - 7.7)

=1,380

Labour Efficiency Variance = Standard Rate (standard Hours - Actual Rate)

= 8 (4000 - 4600)

= (4,800)

Solution to 1c

Given That,

Actaual Variable Overhead Machine Hours = 1300

Standard Variable Overhead Machine Hours = 5,000 * Standard Hours for production of 1 pool

= 5,000 * 0.2

= 1,000

Standard Variable Overhead Cost = Standard Variable Overhead Rate * Standard Hours for production of 1 pool * Actual Production

= 3.5*0.2*5,000

= $3,500

Actual Variable Overhead Cost = $5,070

Variable Overhead Rate Variance = Standard cost - Actual Cost

= 3500 - 5070

= (1,570)

Variable Overhead Efficiency Variance = Standard Rate (Standard Hours - Actual Hours)

= 3.5 (1000 - 1300)

= (4,200)

Solution to 2

Material Price Variance	8685	U
Material Quantity Variance	500	F
Labour Rate Variance	1380	F
Labour Efficiency Variance	4800	U
Variable Overhead Rate Variance	1570	U
Variable Overhead Efficiency Variance	4200	U
Net Variance	17,375	U