Performing a Comprehensive Variance Analysis [LO2 - CC14; LO3 - CC15, 16, 17, 18; LO4 - CC22, 23, 24] CHECK FIGURES (1a Materials price variance: $3,000 F (2) Net variance: $16,290 U Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows: Standard Quantity Standard Price Standard or Hours or Rate Cost Direct materials 1.5 kilograms $4 per kilogram $ 6.00 Direct labour 0.8 hours $6 per hour 4.80 Variable manufacturing overhead 0.4 machine-hours $3 per machine-hour 1.20 Total standard cost $12.00 The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 15,000 pools; the normal volume is 15,150 pools per month. Fixed costs are allocated using machine-hours. Flexible Actual Budgeted Sales (15,000 pools) $450,000 $450,000 Less: 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 Less: Fixed expenses: Manufacturing overhead 130,290 130,290Selling and administrative 84,000 84,000 Total fixed expenses 214,290 214,290 Net income $ 35,710 $ 19,420 "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. 30,000 kilograms of materials were purchased at a cost of $3.90 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. 11,800 direct labour-hours were worked at a cost of $7 per hour. d. Variable manufacturing overhead cost totalling $18,290 for the month was incurred. 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. Required: 1. Compute the following variances for June: a. Direct materials price and quantity variances. b. Direct labour rate and efficiency variances. c. Variable overhead spending and efficiency variances. 2. Summarize the variances you computed in part (1) by showing the net overall favourable or unfavourable variance for the month. What impact did this figure have Page 569 on the company's income statement? Show your computations. 3. Pick out the two most significant variances you computed in part (1). Explain to Dunn the possible causes of these variances. 4. Compute the fixed overhead cost variances and explain their significance to Dunn. 5. Do you agree that the budget shown above is the proper comparison for the actual results for June, or do you think that the correct budget should be based on a volume of 15,150 pools? Explain