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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
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: BudgetedActual 240,000 Sales (8,000 pools) $240,000 $ Variable expenses Variable cost of 94,000 112,470 goods sold* Variable selling 10,000 10,000 expenses Total variable expenses 104,000 122,470 117,530 Contribution margin 136,000 Fixed expenses Manufacturing overhead 55,000 55,000 Selling and 70,000 70,000 administrative Total fixed expenses S 125,000 125,000 Net operating income s 11,000 $ oss 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 provid with the following standard cost per swimming pool ed Standard Quantity or Hours Standard Price Standard Cost $ 8.75 $6.50 per hour2.60 or Rate 2.50 per pound 3.5 pounds $ Direct materials Direct labor Variable manufacturing 0.2 hours 0.4 hours $2.00 per hour 0.40 overhead 11.75 Total standard cost *Based on machine-hours During June the plant produced 8,000 pools and incurred the following costs a.Purchased 33,000 pounds of materials at a cost of $2.95 per pound b.Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,800 direct labor-hours at a cost of $6.20 per hour d.Incurred variable manufacturing overhead cost totaling $4,560 for the month. A total of 1,900 machine-hours was recorded It is the company's policy to close all variances to cost of goods sold on a monthly basis
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