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2. Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution
2. 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 (variable costing) income statement provided below: Budgeted Actual Sales (15,000 Pools) $450,000 $450,000 Variable COGS* $180,000 $196,290 Variable Selling & Admin $20,000 $20,000 Total Variable Costs $200,000 $216,290 Contribution Margin $250,000 $233,710 Fixed Manuf. Overhead $130,000 $130,000 Fixed Selling & Admin $84,000 $84,000 Total Fixed Costs $214,000 $214,000 Net Operating Income $36,000 $19,710 *Contains direct materials, direct labor, and variable manufacturing overhead (variable costing) 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: Direct Materials Direct Labor Variable Mfg OH Total Standard Cost Standard Quantity Standard Price or Rate Standard Cost or Hours 3.0 Pounds $2.00 per Pound $6.00 per Pool 0.8 Labor Hours $6.00 per Labor Hour $4.80 per Pool 0.4 Machine Hours $3.00 per machine Hour $1.20 per Pool $12.00 per Pool During June the plant produced 15,000 pools and incurred the following costs: Purchased 60,000 pounds of materials at a cost of $1.95 per pound. Used 49,200 pounds of materials in production. Worked 11,800 direct labor-hours at a cost of $7,00 per hour - Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine hours was recorded. Required: a) Compute the materials price and quantity variances. b) Compute the labor rate and efficiency variances. c) Compute the variable overhead rate and efficiency variances. d) What is the net overall favorable or unfavorable variance for the month? What impact did this figure have on the company's income statement? e) Explain to Janet Dunn what the two most significant variances are and what are possible causes of these variances
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