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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
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: Sales (4,000 pools) Variable expenses: Variable cost of goods sold Variable selling expenses Total variable expenses Contribution margin Fixed expenses: Manufacturing overhead Selling and administrative Total fixed expenses Net operating income (loss) Flexible Budget $ 239,000 Actual $ 239,000 57,680 70,390 16,000 16,000 73,680 86,390 165,320 152,610 72,000 72,000 82,000 82,000 154,000 154,000 $ 11,320 $ (1,390) "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 provided with the following standard cost per swimming pool: Standard Standard Quantity or Standard Price or Hours Rate Cost Direct materials Direct labor 3.2 pounds 0.6 hours $ 2.70 per pound $ 7.30 per hour $ 8.64 4.38 Variable manufacturing overhead 0.5 hours $ 2.80 per hour 1.40 $14.42 Total standard cost per unit "Based on machine-hours. During June, the plant produced 4,000 pools and incurred the following costs: a. Purchased 17,800 pounds of materials at a cost of $3.15 per pound. b. Used 12,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
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