Question

Problem 10-15 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] 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: Flexible Actual Budget $ 265,000 $ 265,000 Sales (6,000 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) 95,580 14,000 109,580 155,420 112,700 14,000 126,700 138,300 63,000 78,000 141,000 14,420 $ 63,000 78,000 141,000 (2,700) $ * 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 3.9 pounds 0.8 hours 0.6 hours Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit Standard Price or Rate $ 2.30 per pound $ 6.90 per hour $ 2.40 per hour Standard Cost $ 8.97 5.52 1.44 $15.93 *Based on machine-hours. During June, the plant produced 6,000 pools and incurred the following costs: a. Purchased 28,400 pounds of materials at a cost of $2.75 per pound. b. Used 23,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 5,400 direct labor-hours at a cost of $6.60 per hour. d. Incurred variable manufacturing overhead cost totaling $10,920 for the month. A total of 3,900 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis.

Answer 1

1-a)	Material price variance
	(Actual price - standard price )* AQ purchased
	(2.75-2.30)*28400
	12780	U
	Materials Quantity variance
	(AQ used - SQ allowed)*Standard price
	(23,200 - 6000*3.9)*2.30
	460	F
1-b)	Labor rate variance
	(Actual rate - standard rate)*Actual hours
	(6.60- 6.90)*5400
	1620	F
	Labor Efficiency variance
	(Actual hours - standard hours allowed)* Std rate
	(5400 -6000*.8)*6.9
	4140	U
1-c)	Variable overhead rate variance
	(Actual rate - standard rate)*Actual machinehours
	(10,920 - 3900*2.4)
	1560	U
	Variable overhead Efficiency variance
	(Actual hours - standard hours allowed)* Std rate
	(3900 -6000*.6)*2.4
	720	U
2)	Net Variance		17,120	U
	Material price variance				12,780	U
	Material quantity variance				460	F
	labor rate variance				1620	F
	labor efficiecny variance				4140	U
	variable overhead rate variance				1560	U
	variable overhead efficiency variance				720	U
	net variance				17,120	U