Question

Problem 9-18 Comprehensive Variance Analysis [LO9-4, LO9-5, LO9-6 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 Budget $ 272,000 $272,000 Actual 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 84,250 99,765 23,000 23,000 122,765 164,750 149,235 107,250 64,000 64,000 89,000 89,000 153,000 Total fixed expenses 153,000 Net operating income (loss) 11,750 (3,765) "Contains direct materlals, direct labor, and varlable 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 es in the variable cost of goods sold. She has been provided with the following standard cost per swimming pool Standard Quantity Standard PriceStandard or Hours 3.9 or Rate Cost per pirect materials $2.50 $ 9.75 pounds 0.8 hours $8.00 per hour 0.2 pound Direct labor Variable manufacturing overhead 6.40 0.70 $3.50 per hour hours Total standard cost per $16.85 unit "Based on machine-hours During June the plant produced 5,000 pools and incurred the following costs: a. Purchased 24,500 pounds of materials at a cost of $2.95 per pound. b. Used 19,300 pounds of materials in praduction. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 4,600 direct labor-hours at a cost of $7.70 per hour. d. Incurred variable manufacturing overhead cost totaling $5,070 for the month. A total of 1,300 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 varances C. Variable overhead rate and efficiency variances 2. Summarize the varlances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month

How do you solve for 1a,1b,1c, and 2?

Answer 1

1.
a. Material Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased
= ($2.95 - $2.50) x 24500 = $11025 (U)

It may be calculated for Actual Quantity used
a. Material Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased
= ($2.95 - $2.50) x 19300 = $8685 (U)

Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (19300 - 19500) x $2.50 = $500 (F)
Standard Quantity = 5000 x 3.90 = 19500

b. Labor rate variance = (Actual rate - Standard rate) x Actual Hours
= ($7.70 - $8) x 4600 = $1380 (F)

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard Rate
= (4600 - 4000) x $8 = $4800 (U)
Standard Hours = 5000 x 0.8 = 4000

c. Variable Overhead rate variance = (Actual rate - Standard rate) x Actual Hours
= ($3.90 - $3.50) x 1300 = $520 (U)
Actual rate = $5070 / 1300 = $3.90

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard Rate
= (1300 - 1000) x $3.50 = $1050 (U)
Standard Hours = 5000 x 0.2 = 1000

2.

	On Basis of	On Basis of
	Purchased	Used
Material Price variance	$        11,025	$           8,685
Material Quantity Variance	$            -500	$             -500
Labor Rate Variance	$         -1,380	$         -1,380
Labor Efficiency Variance	$          4,800	$           4,800
Variable Overhead Rate Variance	$             520	$              520
Variable Overhead Efficiency Variance	$          1,050	$           1,050
	$        15,515	$         13,175
	Unfavorable	Unfavorable