Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 8-18A Comprehensive Variance Analysis [LO8-4, LO8-5, LO8-6] Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing

Problem 8-18A Comprehensive Variance Analysis [LO8-4, LO8-5, LO8-6]

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 (3,000 pools) $ 225,000 $ 225,000
Variable expenses:
Variable cost of goods sold* 44,520 56,975
Variable selling expenses 21,000 21,000
Total variable expenses 65,520 77,975
Contribution margin 159,480 147,025
Fixed expenses:
Manufacturing overhead 62,000 62,000
Selling and administrative 87,000 87,000
Total fixed expenses 149,000 149,000
Net operating income (loss) $ 10,480 $ (1,975)
*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 3.7 pounds $ 2.30 per pound $ 8.51
Direct labor 0.6 hours $ 7.80 per hour 4.68
Variable manufacturing overhead 0.5 hours* $ 3.30 per hour 1.65
Total standard cost $ 14.84
*Based on machine-hours.

During June the plant produced 3,000 pools and incurred the following costs:
a.

Purchased 16,100 pounds of materials at a cost of $2.75 per pound.

b.

Used 10,900 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

c. Worked 2,400 direct labor-hours at a cost of $7.50 per hour.
d.

Incurred variable manufacturing overhead cost totaling $6,660 for the month. A total of 1,800 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.

Materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

b.

Labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

c.

Variable overhead rate and efficiency variances. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

2.

Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

3.

Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

Materials price variance
Labor efficiency variance
Variable overhead efficiency variance
Labor rate variance
Variable overhead rate variance
Materials quantity variance

Problem 8-18A Comprehensive Variance Analysis [LO8-4, LO8-5, LO8-6] 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 (3,000 pools) $ 225,000 $ 225,000 Variable expenses: Variable cost of goods sold* 44,520 56,975 Variable selling expenses 21,000 21,000 Total variable expenses 65,520 77,975 Contribution margin 159,480 147,025 Fixed expenses: Manufacturing overhead 62,000 62,000 Selling and administrative 87,000 87,000 Total fixed expenses 149,000 149,000 Net operating income (loss) $ 10,480 $ (1,975) *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 3.7 pounds $ 2.30 per pound $ 8.51 Direct labor 0.6 hours $ 7.80 per hour 4.68 Variable manufacturing overhead 0.5 hours* $ 3.30 per hour 1.65 Total standard cost $ 14.84 *Based on machine-hours. During June the plant produced 3,000 pools and incurred the following costs: a. Purchased 16,100 pounds of materials at a cost of $2.75 per pound. b. Used 10,900 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 2,400 direct labor-hours at a cost of $7.50 per hour. d. Incurred variable manufacturing overhead cost totaling $6,660 for the month. A total of 1,800 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. Materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) b. Labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) c. Variable overhead rate and efficiency variances. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) 3. Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Materials price variance Labor efficiency variance Variable overhead efficiency variance Labor rate variance Variable overhead rate variance Materials quantity variance

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

Recommended Textbook for

Financial Accounting Tools For Business Decision Making

Authors: Paul D. Kimmel

3rd Canadian Edition

0470836792, 978-0470836798

More Books

Students also viewed these Accounting questions

Question

What are the skills of management ?

Answered: 1 week ago

Question

What is your view of spirituality in the workplace?

Answered: 1 week ago