Quantity or Hours Rate 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 0.40hngzi1lne- $3.00 per machine-hour 1.20 Total standard cost $ 10.80 The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 15,100 pools; the normal volume is 15,250 pools per month. Fixed costs are allocated using machine-hours. Flexible Budgeted Actual Sales (15,100 pools) $ 453,000 $ 453,000 Less: Variable expenses: Variable cost of goods sold' 163,080 201,835 Variable selling expenses 20,100 20,100 Total variable expenses 183,180 221,935 Contribution margin 269,820 231,065 Less: Fixed expenses: Manufacturing overhead 131,000 131,000 Selling and administrative 84,560 84,560 Total xed expenses 215,560 215,560 Net income $ 54,260 $ 15,505 *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. 30,100 kilograms of materials were purchased at a cost of $3.90 per kilogram. b. 22,000 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignicant and can be ignored.) c. 11,900 direct labour-hours were worked at a cost of $8 per hour. d. Variable manufacturing overhead cost totalling $21,645 for the month was incurred. A total of 5,850 machine-hours was recorded. 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).) Material price variance Material quantity 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 Labour efficiency variancec. 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 Variable overhead efficiency variance 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 variance2-b. What impact did this figure have on the company's income statement? This will cause the Cost of Goods Sold to , thereby net income by that amount. 3. Pick out the two most significant variances you computed in part (1). (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) 2 Materials price variance 2 Materials quantity variance 2 Labour rate variance 2 Variable overhead efficiency variance 2 Variable overhead spending variance 2 Labour efficiency variance 4. Compute the fixed overhead cost variances. (Round intermediate calculation to 2 decimal places. Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Fixed overhead budget variance Fixed overhead volume variance
