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 standard cost for one pool is as follows: Standard Quantity or Hours

Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows:

Standard Quantity or Hours Standard Price or Rate Standard Cost
Direct materials 1.20 kilograms $4.00 per kilogram $ 4.80
Direct labour 0.80 hours $6.00 per hour 4.80
Variable manufacturing overhead 0.40 machine-hours $4.00 per machine-hour 1.60
Total standard cost $ 11.20

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
Sales (15,200 pools) $ 456,000 $ 456,000
Less: Variable expenses:
Variable cost of goods sold* 170,240 195,002
Variable selling expenses 20,300 20,300
Total variable expenses 190,540 215,302
Contribution margin 265,460 240,698
Less: Fixed expenses:
Manufacturing overhead 132,000 132,000
Selling and administrative 85,120 85,120
Total fixed expenses 217,120 217,120
Net income $ 48,340 $ 23,578
*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 $3.70 per kilogram.
b.

24,600 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignificant and can be ignored.)

c. 11,600 direct labour-hours were worked at a cost of $7 per hour.
d.

Variable manufacturing overhead cost totalling $24,612 for the month was incurred. A total of 5,860 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.

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).)

b.

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 U
Labour efficiency variance F

c.

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 U
Variable overhead efficiency variance F

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 U

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

Students also viewed these Accounting questions

Question

Explain the pages in white the expert taxes

Answered: 1 week ago