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 (4,000 pools)	$	239,000	$	239,000
Variable expenses:
Variable cost of goods sold*		57,680		70,390
Variable selling expenses		16,000		16,000
Total variable expenses		73,680		86,390
Contribution margin		165,320		152,610
Fixed expenses:
Manufacturing overhead		72,000		72,000
Selling and administrative		82,000		82,000
Total fixed expenses		154,000		154,000
Net operating income (loss)	$	11,320	$	(1,390)

*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	3.2 pounds	$	2.70 per pound	$	8.64
Direct labor	0.6 hours	$	7.30 per hour		4.38
Variable manufacturing overhead	0.5 hours*	$	2.80 per hour		1.40
Total standard cost				$	14.42

*Based on machine-hours.

During June the plant produced 4,000 pools and incurred the following costs:

a.	Purchased 17,800 pounds of materials at a cost of $3.15 per pound.
b.	Used 12,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c.	Worked 3,000 direct labor-hours at a cost of $7.00 per hour.
d.	Incurred variable manufacturing overhead cost totaling $7,360 for the month. A total of 2,300 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).)

Material price variance
Material quantity 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).)

Labor rate variance
Labor efficiency 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).)

Variable overhead rate variance
Variable overhead efficiency 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).)

Summary of variances:
Material price variance
Material quantity variance
Labor rate variance
Labor efficiency variance
Variable overhead rate variance
Variable overhead efficiency variance
Net variance