Reference no: EM131188073

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 (3,000 pools) $ 210,000 $ 210,000 Variable expenses: Variable cost of goods sold* 38,220 49,235 Variable selling expenses 15,000 15,000 Total variable expenses 53,220 64,235 Contribution margin 156,780 145,765 Fixed expenses: Manufacturing overhead 66,000 66,000 Selling and administrative 81,000 81,000 Total fixed expenses 147,000 147,000 Net operating income (loss) $ 9,780 $ (1,235) *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 3.1 pounds $ 2.60 per pound $ 8.06 Direct labor 0.5 hours $ 7.20 per hour 3.60 Variable manufacturing overhead 0.4 hours* $ 2.70 per hour 1.08 Total standard cost $ 12.74 *Based on machine-hours. During June the plant produced 3,000 pools and incurred the following costs: a. Purchased 14,300 pounds of materials at a cost of $3.05 per pound. b. Used 9,100 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 $6.90 per hour. d. Incurred variable manufacturing overhead cost totaling $4,650 for the month. A total of 1,500 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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) b. Labor rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) c. Variable overhead rate and efficiency variances. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (Input all values as positive amounts. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

3. Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.) Materials price variance Labor efficiency variance Variable overhead efficiency variance Labor rate variance Variable overhead rate variance Materials quantity variance.