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 (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) Flexible Budget $ 290,000 Actual $ 290,000 104,400 124,770 20,000 20,000 124,400 144,778 165,600 145,230 68,000 68,000 86,000 86,000 154,000 154,000 $ 11,600 $ (8,778) "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 Direct materials Quantity or Hours 3.6 pounds Standard Price or Rate Standard Cost $ 2.20 per pound $7.92 Direct labor 0.5 hours $ 7.70 per hour 3.85 Variable manufacturing overhead 0.4 hours $ 3.20 per hour Total standard cost per unit 1.28 $13.05 "Based on machine-hours. During June the plant produced 8,000 pools and incurred the following costs: a. Purchased 33,800 pounds of materials at a cost of $2.65 per pound. b. Used 28,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be Ignored) c. Worked 4,600 direct labor-hours at a cost of $7.40 per hour. d. Incurred variable manufacturing overhead cost totaling $12,600 for the month. A total of 3,500 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. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 (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)
Flexible Budget
$ 290,000
Actual
$ 290,000
104,400
124,770
20,000
20,000
124,400
144,778
165,600
145,230
68,000
68,000
86,000
86,000
154,000
154,000
$ 11,600
$ (8,778)
"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
Direct materials
Quantity or
Hours
3.6 pounds
Standard Price or Rate
Standard
Cost
$ 2.20 per pound
$7.92
Direct labor
0.5 hours
$ 7.70 per hour
3.85
Variable manufacturing overhead
0.4 hours
$ 3.20 per hour
Total standard cost per unit
1.28
$13.05
"Based on machine-hours.
During June the plant produced 8,000 pools and incurred the following costs:
a. Purchased 33,800 pounds of materials at a cost of $2.65 per pound.
b. Used 28,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be
Ignored)
c. Worked 4,600 direct labor-hours at a cost of $7.40 per hour.
d. Incurred variable manufacturing overhead cost totaling $12,600 for the month. A total of 3,500 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.
b. Labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.
Transcribed Image Text: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 (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) Flexible Budget $ 290,000 Actual $ 290,000 104,400 124,770 20,000 20,000 124,400 144,778 165,600 145,230 68,000 68,000 86,000 86,000 154,000 154,000 $ 11,600 $ (8,778) "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 Direct materials Quantity or Hours 3.6 pounds Standard Price or Rate Standard Cost $ 2.20 per pound $7.92 Direct labor 0.5 hours $ 7.70 per hour 3.85 Variable manufacturing overhead 0.4 hours $ 3.20 per hour Total standard cost per unit 1.28 $13.05 "Based on machine-hours. During June the plant produced 8,000 pools and incurred the following costs: a. Purchased 33,800 pounds of materials at a cost of $2.65 per pound. b. Used 28,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be Ignored) c. Worked 4,600 direct labor-hours at a cost of $7.40 per hour. d. Incurred variable manufacturing overhead cost totaling $12,600 for the month. A total of 3,500 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. b. Labor rate and efficiency variances. c. Variable overhead rate and efficiency variances. 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month.
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