Problem 10-15 (Algo) Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] 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: Flexible Budget Actual Sales (8,000 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) $ 240,000 $240,000 94,000 112,470 10,000 10,000 104,000 122,470 136,000 117,530 55,000 55,000 70,000 70,000 125,000 125,000 $ 11,000 $ (7,470) *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 Direct labor 3.5 pounds $ 2.50 per pound $ 8.75 0.4 hours $ 6.50 per hour Variable manufacturing overhead Total standard cost per unit 0.2 hours* $ 2.00 per hour 2.60 0.40 $ 11.75 *Based on machine-hours. During June, the plant produced 8,000 pools and incurred the following costs: a. Purchased 33,000 pounds of materials at a cost of $2.95 per pound. b. Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 3,800 direct labor-hours at a cost of $6.20 per hour. d. Incurred variable manufacturing overhead cost totaling $4,560 for the month. A total of 1,900 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis.