Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	1.40	kilograms	$	5.00	per kilogram	$	7.00
Direct labour	1.10	hours	$	5.00	per hour		5.50
Variable manufacturing overhead	0.50	machine-hours	$	3.00	per machine-hour		1.50
Total standard cost						$	14.00

The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 14,000 pools; the normal volume is 14,150 pools per month. Fixed costs are allocated using machine-hours.

	Flexible Budgeted		Actual
Sales (14,000 pools)	$	450,000	$	450,000
Less: Variable expenses:
Variable cost of goods sold*		196,000		202,180
Variable selling expenses		18,700		18,700
Total variable expenses		214,700		220,880
Contribution margin		235,300		229,120
Less: Fixed expenses:
Manufacturing overhead		121,000		121,000
Selling and administrative		78,400		78,400
Total fixed expenses		199,400		199,400
Net income	$	35,900	$	29,720

*Contains direct materials, direct labour, and variable manufacturing overhead.

Janet Dunn, the general manager of the Westwood Plant, wants to get things under control. She needs information about the operations in June since the income statement signalled that the problem could be due to the variable cost of goods sold. Dunn learns the following about operations and costs in June:

1. 30,700 kilograms of materials were purchased at a cost of $4.00 per kilogram.
2. 24,800 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignificant and can be ignored.)
3. 15,000 direct labour-hours were worked at a cost of $6 per hour.
4. Variable manufacturing overhead cost totalling $18,880 for the month was incurred. A total of 5,900 machine-hours was recorded.

It is the companys policy to close all variances to cost of goods sold on a monthly basis.

Required:

1. Compute the following variances for June:

a. Direct materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

b. Direct labour rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

c. Variable overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2-a. Summarize the variances you computed in part (1) by showing the net overall favourable or unfavourable variance for the month. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2-b. What impact did this figure have on the company's income statement?

3. Pick out the two most significant variances you computed in part (1). (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

check all that apply

• Materials price variance
• Materials quantity varianceunanswered
• Labour rate variance
• Variable overhead efficiency varianceunanswered
• Variable overhead spending varianceunanswered
• Labour efficiency variance

4. Compute the fixed overhead cost variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)