Question

Miler Toy Company manufactures a plastic w ming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below 110.000 Sales (4.000 pools) Variables Variable cost of goods Variable sing expenses 127.280 51.000 51.000 Contribution margin Fored penges Manufacturing overhead Seling and ad v e Tots de Net operating income T . (1210) $10.2005 Contains direct materia 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 Durn 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 Ovet materials 3.1 pounds 32.10 per pound Direct labor 0.4 38.10 hour Vara u turing overhead 03 nors $1.00 per hour Total standard cost Based on machine hours During June the plant produced 4000 pools and incurred the following costs a Purchased 17 400 pounds of materials at a cost of $2.55 per pound Used 12.200 pounds of materials in production (Fished goods and work in process inventories are insignificant and can be onored) Worked 2 200 direct labor-hours at a cost of $5 80 per hour d. Incurred variable manufacturing overhead cost totaling $3000 for the month A total of 1500 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 indicate the effect of each variance by selecting for favorable. U for unfavorable, and "None for no effectie, zero variance Material price variance Material quantity wariance b. Laborate and efficiency variances Indicate the effect of each variance by selecting for favorable," for unfavorable and "None for no effect zero variance Laborate variance Laborone variance

Answer 1

Material Price Variance = (Standard Price – Actual Price)*Actual Quantity

= (2.10-2.55)*17,400

= $7,830 Unfavorable

Material Quantity Variance = (Standard Quantity – Actual Quantity)*Standard Price

= (4,000*3.1 - 12,200)*2.10

= $420 favorable

Labor Rate variance = (Standard Rate – Actual Rate)*Actual Hours

= (6.10-5.80)*2,200

= $660 favorable

Labor Efficiency Variance = (Standard Hours – Actual Hours)*Standard Rate

= (4,000*0.4 – 2,200)*6.10

= $3,660 unfavorable