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 $ 675,000 $675,000 Sales (15,000 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) 435,000 20,000 455,000 220,000 461,890 20,000 481,890 193, 110 130,000 130,000 84,000 84,000 214,000 214,000 $ 6,000 $ (20,890) *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 Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit Standard Quantity or Hours 3.0 pounds 0.8 hours 0.4 hours* Standard Price or Rate $ 5.00 per pound $16.00 per hour $ 3.00 per hour $ 15.00 12.80 1.20 $ 29.00 *Based on machine-hours. During June, the plant produced 15,000 pools and incurred the following costs:

Answer 1

1-a)	Material price variance
	(Actual price - standard price )* AQ purchased
	(4.95-5)*60000
	3000	F
	Materials Quantity variance
	(AQ used - SQ allowed)*Standard price
	(49200 - 15000*3)*5
	21000	U
1-b)	Labor rate variance
	(Actual rate - standard rate)*Actual hours
	(17-16)*11800
	11800	U
	Labor Efficiency variance
	(Actual hours - standard hours allowed)* Std rate
	(11800 - 15000*.8)*16
	3200	F
1-c)	Variable overhead rate variance
	(Actual rate - standard rate)*Actual machinehours
	(18,290 - 5900*3)
	590	U
	Variable overhead Efficiency variance
	(Actual hours - standard hours allowed)* Std rate
	(5900 - 15000*.4)*3
	300	F
2)	Net Variance		26,890	U
	Material price variance				3,000	F
	Material quantity variance				21000	U
	labor rate variance				11800	U
	labor efficiecny variance				3200	F
	variable overhead rate variance				590	U
	variable overhead efficiency variance				300	F
	net variance				26,890	U