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 BudgetActualSales (15,000 pools)$675,000$675,000Variable expenses:Variable cost of goods sold*435,000461,890Variable selling expenses20,00020,000Total variable expenses455,000481,890Contribution margin220,000193,110Fixed expenses:Manufacturing overhead130,000130,000Selling and administrative84,00084,000Total fixed expenses214,000214,000Net 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 HoursStandard Price

or RateStandard CostDirect materials3.0 pounds$5.00per pound$15.00Direct labor0.8 hours$16.00per hour12.80Variable manufacturing overhead0.4 hours*$3.00per hour1.20Total standard cost per unit$29.00*Based on machine-hours.

During June, the plant produced 15,000 pools and incurred the following costs:

1. Purchased 60,000 pounds of materials at a cost of $4.95 per pound.
2. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
3. Worked 11,800 direct labor-hours at a cost of $17.00 per hour.
4. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 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 variances.

c. Variable overhead rate and efficiency variances.

2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.