Miller Toy Company manufactures a plastic swimming pool at itsWestwood Plant. The plant has been experiencing problems as shownby its June contribution format income statement below:
| Flexible Budget | Actual |
| Sales (15,000 pools) | $ | 675,000 | | $ | 675,000 | |
| Variable expenses: | | | | | | | |
| Variable cost of goods sold* | | 435,000 | | | 461,890 | |
| Variable selling expenses | | 20,000 | | | 20,000 | |
| Total variable expenses | | 455,000 | | | 481,890 | |
| Contribution margin | | 220,000 | | | 193,110 | |
| Fixed expenses: | | | | | | |
| Manufacturing overhead | | 130,000 | | | 130,000 | |
| Selling and administrative | | 84,000 | | | 84,000 | |
| Total fixed expenses | | 214,000 | | | 214,000 | |
| Net operating income (loss) | $ | 6,000 | | $ | (20,890 | ) |
|
*Contains direct materials, direct labor, and variablemanufacturing overhead.
Janet Dunn, who has just been appointed general manager of theWestwood Plant, has been given instructions to “get things undercontrol.” Upon reviewing the plant’s income statement, Ms. Dunn hasconcluded that the major problem lies in the variable cost of goodssold. She has been provided with the following standard cost perswimming pool:
| Standard Quantity or Hours | Standard Price
or Rate | Standard Cost |
| Direct materials | 3.0 pounds | $ | 5.00 | per pound | $ | 15.00 |
| Direct labor | 0.8 hours | $ | 16.00 | per hour | | 12.80 |
| Variable manufacturing overhead | 0.4 hours* | $ | 3.00 | per hour | | 1.20 |
| Total standard cost per unit | | | | | $ | 29.00 |
|
*Based on machine-hours.
During June, the plant produced 15,000 pools and incurred thefollowing costs:
- Purchased 60,000 pounds of materials at a cost of $4.95 perpound.
- Used 49,200 pounds of materials in production. (Finished goodsand work in process inventories are insignificant and can beignored.)
- Worked 11,800 direct labor-hours at a cost of $17.00 perhour.
- Incurred variable manufacturing overhead cost totaling $18,290for the month. A total of 5,900 machine-hours was recorded.
It is the company’s policy to close all variances to cost ofgoods 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 byshowing the net overall favorable or unfavorable variance for themonth.
