Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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:

Flexible Budget Actual
Sales (8,000 pools) $ 265,000 $ 265,000
Variable expenses:
Variable cost of goods sold* 88,960 106,490
Variable selling expenses

16,000

16,000
Total variable expenses

104,960

122,490
Contribution margin

160,040

142,510
Fixed expenses:
Manufacturing overhead 65,000 65,000
Selling and administrative 80,000 80,000
Total fixed expenses

145,000

145,000
Net operating income (loss) $ 15,040 $

(2,490

)

*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 plants 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 Quantity or Hours Standard Price or Rate Standard Cost
Direct materials 3.0 pounds $

2.50

per pound $ 7.50
Direct labor 0.4 hours $

7.10

per hour 2.84
Variable manufacturing overhead 0.3 hours* $

2.60

per hour

0.78

Total standard cost per unit $ 11.12

*Based on machine-hours.

During June the plant produced 8,000 pools and incurred the following costs:

  1. Purchased 29,000 pounds of materials at a cost of $2.95 per pound.
  2. Used 23,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

  3. Worked 3,800 direct labor-hours at a cost of $6.80 per hour.

  4. Incurred variable manufacturing overhead cost totaling $8,100 for the month. A total of 2,700 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. Materials price and quantity variances.

b. Labor rate and efficiency variances.

c. Variable overhead rate and efficiency variances.

2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Cost Accounting

Authors: William Lanen, Shannon Anderson, Michael Maher

3rd Edition

9780078025525, 9780077517359, 77517350, 978-0077398194

More Books

Students also viewed these Accounting questions