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:

Budgeted Actual

Sales (15,000 pools) $450,000 $450,000

Variable expenses:

Variable cost of goods sold* 180,000 196,290

Variable selling expenses 20,000 20,000

Total variable expenses 200,000 216,290

Contribution margin 250,000 233,710

Fixed expenses:

Manufacturing overhead 130,000 130,000

Selling and administrative 84,000 84,000

Total fixed expenses 214,000 214,000

Net operating income $36,000 $19,710

*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 Quantity or Hours Standard Price or Rate Standard Cost

Direct materials 3.0 pounds $2.00 per pound $6.00

Direct labor 0.8 hours $6.00 per hour 4.80

Variable manufacturing

overhead 0.4 hours* $3.00 per hour 1.20

Total standard cost $12.00

*Based on machine-hours.

During June the plant produced 15,000 pools and incurred the following costs:

a. Purchased 60,000 pounds of materials at a cost of $1.95 per pound.

b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

c. Worked 11,800 direct labor-hours at a cost of $7.00 per hour.

d. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine-hours was recorded.

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

Compute the following variances for June:

1.Compute the following variances for June:

a.Direct materials price and quantity variances.

b.Direct 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. What impact did this figure have on the company's income statement? Show computations.

3.Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances.