Question

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: Sales (3,000 pools) Budgeted S 250,000 Actual $250,000 Variable expenses: Variable cost of goods sold* Variable selling expenses 53,430 26.000 67,000 26.000 Total variable expenses 79,430 93,000 Contribution margin 170,570 157,000 Fixed expenses: Manufacturing overhead Selling and administrative 67,000 92.000 67,000 92.000 Total fixed expenses 159,000 11,570 159,000 S (2.000) Net operating income (loss) $ *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: Direct materials Direct labor Variable manufacturing overhead Standard Quantity or Hours 4.2 pounds 0.5 hours 0.5 hours Standard Price or Rate $2.80 per pound $8.30 per hour $3.80 per hour Standard Cost S 11.76 4.15 1.90 0 5 hours Total standard cost S 17.81 *Based on machine-hours During June the plant produced 3,000 pools and incurred the following costs: a. Purchased 17,600 pounds of materials at a cost of $3.25 per pound. b. Used 12,400 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 2.100 direct labor-hours at a cost of $8.00 per hour. d. Incurred variable manufacturing overhead cost totaling $7,560 for the month. A total of 1.800 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. 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

Answer 1

1)Ans:-

Material Price Variance	5580	F
Material quantity variance	2400	U

Explanation

a) Material price variance = AQ [AP -SP]

                                  = 12400 [3.25 - 2.80]

                                  =12400 *0.45

                                  = 5580 F

Material quantity variance = SR [AQ-SQ]

                                     = 2.80 [12400 - (3000 * 3.80)]

                                    = 2.80[12400 - 11400]

                                    = 2 * 1200

                                    = 2400 U

B)Ans:

Labor rate variance	-630	U
Labor efficiency variance	3600	F

Explanation

Labor rate variance = AH [AR-SR].

                                 = 2100 [8-8.30 ]

= 2100* -0.30

                                 = -630 U

Labor efficiency variance =   SR [AH -SH]

                                       = 8.30 [2100 - (3000*.5)]

                                       = 6[2100 - 1500]

                                        = 6* 600

                                        = 3600 F

C) Ans:

variable overhead rate variance	720	U
variable overhead Efficiency variance	900	F

Explanation

variable overhead rate variance = Actual cost - [AMH *SR]

                                                   = 7560 - [1800 * 3.80]

                                                  = 7560 - 6840

                                                  = 720 U

  variable overhead Efficiency variance = SR [AMH -SMH]

                           = 3.80 [1800- (3000* .5)]

                           = 3.80[1800 - 1500]

                           = 3 * 300

                          = 900 F

2) Ans :-

Summary of Variance
Material Price Variance	5580	F
Material quantity variance	2400	U
Labor rate variance	-630	U
Labor efficiency variance	3600	F
variable overhead rate variance	720	U
variable overhead Efficiency variance	900	F
Net Variance	12570	U

Net variance = 5580 F+2400 U+ (-630) U+3600 F+ 720 U +900 F

                      = 12570 U