Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows: Standard Standard Price or Standard Quantity or Hours Rate Cost Direct materials 1.30 kilograms $4.00 per kilogram $ 5.20 Direct labour 0.80 hours $6.00 per hour 4.80 Variable manufacturing overhead $2.00 per machine-hour 0.80 hours 0.40 machine Total standard cost $ 10.80 The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 15,200 pools, the normal volume is 15,350 pools per month. Fixed costs are allocated using machine-hours. Flexible Budgeted Actual $ 456,000 $ 456,000 164,160 20,300 179,090 20,300 Sales (15,200 pools) Less: Variable expenses: Variable cost of goods sold* Variable selling expenses Total variable expenses Contribution margin Less: Fixed expenses Manufacturing overhead Selling and administrative 184,460 199,390 271,540 256,610 132,000 85,120 132,000 85,120 Total fixed expenses 217,120 217,120 Net income $ 54,420 $ 39,490 *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: a. 30,700 kilograms of materials were purchased at a cost of $3.00 per kilogram. b. 24,200 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignificant and can be ignored.) c. 11,900 direct labour-hours were worked at a cost of $8 per hour. d. Variable manufacturing overhead cost totalling $17,790 for the month was incurred. A total of 5,930 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis. Required: Compute the following variances for June: 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).) Material price variance Material quantity variance 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).) Labour rate variance Labour efficiency variance 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).) Variable overhead spending variance Variable overhead efficiency 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).) Net variance 2-b. What impact did this figure have on the company's income statement? This will cause the cost of Goods Sold to thereby net income by that amount 4. Compute the fixed overhead cost variances. (Round intermediate calculation to 2 decimal places. Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Fixed overhead budget variance Fixed overhead volume variance
