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 S450,000 Variable COGS $180,000 S196 290 Variable Selling & Admin $20,000 $20,000 Total Variable Costs $200,000 $216,290 Contribution Margin $250,000 $233 710 Fixed Manuf. Overhead S130,000 $130,000 Fixed Selling & Admin $84,000 S84,000 Total Fixed Costs S214,000 S214,000 Net Operating Income $36.000 S19.710 *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: Standard Cost Direct Materials Direct Labor Variable Mfg OH Total Standard Cost Standard Quantity Standard Price or Rate or Hours 3.0 Pounds $2.00 per Pound 0.8 Labor Hours $6.00 per Labor Hour 0.4 Machine Hours $3.00 per machine Hour S6.00 per Pool S4.80 per Pool SI 20 S12.00 per Pool per Pool Times NOW... 12 Aa M PO BIUab x x ~ ~ Av Styles Styles Pane Dictata Fixed Selling & Admin S84,000 $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: Standard Cost Direct Materials Direct Labor Variable Mfg OH Total Standard Cost Standard Quantity Standard Price or Rate or Hours 3.0 Pounds $2.00 per Pound 0.8 Labor Hours $6.00 per Labor Hour 0.4 Machine Hours $3.00 per machine Hour $6.00 per Pool S4.80 per Pool SI 20 per Pool S12.00 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 e) 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
