Reference no: EM131779550

Problem - 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:

	Budgeted	Actual
Sales (5,800 pools)	$290,000	$290,000
Variable expenses:
Variable cost of goods sold*	98,658	111,959
Variable selling expenses	20,000	20,000
Total variable expenses	118,658	131,959
Contribution margin	171,342	158,041
Fixed expenses:
Manufacturing overhead	51,000	51,000
Selling and administrative	65,500	65,500
Total fixed expenses	116,500	116,500
Net operating income	$54,842	$41,541

*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	4.40 pounds	$2.80 per pound	$12.32
Direct labor	.50 hours	$8.30 per hour	4.15
Variable manufacturing overhead	.30 hours*	$1.80 per hour	.54
Total standard cost			$17.01

*Based on machine-hours.

During June the plant produced 5,800 pools and incurred the following costs:

a. Purchased 31,624 pounds of materials at a cost of $3.10 per pound.

b. Used 25,220 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

c. Worked 3,400 direct labor-hours at a cost of $8.00 per hour.

d. Incurred variable manufacturing overhead cost totaling $4,656 for the month. A total of 1,940 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. (a) Compute the direct materials price and quantity variances for June.

(b) Compute the direct labor rate and efficiency variances for June.

(c) Compute the variable overhead rate and efficiency variances for June.

2. (a) Compute the net overall variance for the month.

(b) What impact did this figure have on the company's income statement?