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:
|Sales (15,000 pools)||$||675,000||$||675,000|
|Variable cost of goods sold*||435,000||461,890|
|Variable selling expenses||20,000||20,000|
|Total variable expenses||455,000||481,890|
|Selling and administrative||84,000||84,000|
|Total fixed expenses||214,000||214,000|
|Net operating income (loss)||$||6,000||$||(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 Quantity or Hours||Standard Price
|Direct materials||3.0 pounds||$||5.00||per pound||$||15.00|
|Direct labor||0.8 hours||$||16.00||per hour||12.80|
|Variable manufacturing overhead||0.4 hours*||$||3.00||per hour||1.20|
|Total standard cost per unit||$||29.00|
*Based on machine-hours.
During June the plant produced 15,000 pools and incurred the following costs:
1a. Compute the following variances for June, materials price and quantity variances.
1b. Compute the following variances for June, labor rate and efficiency variances.
1c. Compute the following variances for June, variable overhead rate and efficiency variances.
(Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
|Material price variance||F,U,N|
|Material quantity variance||F,U,N|
|Labor rate variance||F,U,N|
|Labor efficiency variance||F,U,N|
|Variable overhead rate variance||F,U,N|
|Variable overhead efficiency variance||F,U,N|
1.Material price variance = (budgeted price-actual price)* actual quantity consumed
=(5-4.95)*49,200= $2,460 F
Material quantity or usage variance= (budgeted quantity-actual quantity)*busgeted price
Budgeted quantity= 3*15,000= 45,000 pounds
Material quantity variance= (45,000-49,200)*$5= $21,000 U
2. Labor rate variance= (Budgted rate-actual rate)* Actual hours
= (16-17)*11,800= $11,800 U
Labor effeciency variance= ( Budgeted hours- Actual hours)*Budgeted rate
Budgeted hours= 0.8*15,000 =12,000 hours
Labor efficiency variance= (12,000-11,800)*16= $3200 F
3. Variable overhead rate variance= (budgeted rate-actual rate)* actual machine hours
=3*5,900- 18,290= 17,700-18290= $590 U
Variable overhead efficiency variance= (Budgete...
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