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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 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:

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 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 $ 2.00 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 companys policy to close all variances to cost of goods sold on a monthly basis.image text in transcribed

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