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: Flexible Budget Actual Sales (7,000 pools) $ 255,000 $ 255,000 Variable expenses: Variable cost of goods sold* 85,400 104,590 Variable selling expenses 15,000 15,000 Total variable expenses 100,400 119,590 Contribution margin 154,600 135,410 Fixed expenses: Manufacturing overhead 64,000 64,000 Selling and administrative 79,000 79,000 Total fixed expenses 143,000 143,000 Net operating income (loss) $ 11,600 $ (7,590) *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 Quantity or Hours Standard Price or Rate Standard Cost Direct materials 4.0 pounds $ 2.40 per pound $ 9.60 Direct labor 0.3 hours $ 7.00 per hour 2.10 Variable manufacturing overhead 0.2 hours* $ 2.50 per hour 0.50 Total standard cost per unit $ 12.20 *Based on machine-hours. During June, the plant produced 7,000 pools and incurred the following costs: Purchased 33,000 pounds of materials at a cost of $2.85 per pound. Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) Worked 2,700 direct labor-hours at a cost of $6.70 per hour. Incurred variable manufacturing overhead cost totaling $4,930 for the month. A total of 1,700 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 requirement 1 by showing the net overall favorable or unfavorable variance for the month.

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: Flexible Budget Actual Sales (7,000 pools) $ 255,000 $ 255,000 Variable expenses: Variable cost of goods sold* 85,400 104,590 Variable selling expenses 15,000 15,000 Total variable expenses 100,400 119,590 Contribution margin 154,600 135,410 Fixed expenses: Manufacturing overhead 64,000 64,000 Selling and administrative 79,000 79,000 Total fixed expenses 143,000 143,000 Net operating income (loss) $ 11,600 $ (7,590) 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 Quantity or Hours Standard Price or Rate Standard Cost Direct materials 4.0 pounds $ 2.40 per pound $ 9.60 Direct labor 0.3 hours $ 7.00 per hour 2.10 Variable manufacturing overhead 0.2 hours $ 2.50 per hour 0.50 Total standard cost per unit $ 12.20 *Based on machine-hours. During June, the plant produced 7,000 pools and incurred the following costs: Purchased 33,000 pounds of materials at a cost of $2.85 per pound. Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) Worked 2,700 direct labor-hours at a cost of $6.70 per hour. Incurred variable manufacturing overhead cost totaling $4,930 for the month. A total of 1,700 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 requirement 1 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

Section: Chapter Questions

Problem 1Q

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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:

	Flexible Budget	Actual
Sales (7,000 pools)	$ 255,000	$ 255,000
Variable expenses:
Variable cost of goods sold*	85,400	104,590
Variable selling expenses	15,000	15,000
Total variable expenses	100,400	119,590
Contribution margin	154,600	135,410
Fixed expenses:
Manufacturing overhead	64,000	64,000
Selling and administrative	79,000	79,000
Total fixed expenses	143,000	143,000
Net operating income (loss)	$ 11,600	$ (7,590)

*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 Quantity or Hours	Standard Price or Rate	Standard Cost
Direct materials	4.0	pounds	$ 2.40	per pound	$ 9.60
Direct labor	0.3	hours	$ 7.00	per hour	2.10
Variable manufacturing overhead	0.2	hours*	$ 2.50	per hour	0.50
Total standard cost per unit					$ 12.20

*Based on machine-hours.

During June, the plant produced 7,000 pools and incurred the following costs:

Purchased 33,000 pounds of materials at a cost of $2.85 per pound.
Used 27,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
Worked 2,700 direct labor-hours at a cost of $6.70 per hour.
Incurred variable manufacturing overhead cost totaling $4,930 for the month. A total of 1,700 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 requirement 1 by showing the net overall favorable or unfavorable variance for the month.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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