Managerial Accounting: AP8-12A Miller Toy Company manufactures a plastic swimming pool

Note: This is a different version of the textbook problem - given amounts are different. Please review your question and make sure you have the same problem. If not, format and way of solving the problem is similar. Please take note of the formulas and links indicated throughout the tutorial

Managerial Accounting

AP8-12A
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 (5,400 pools) 270,000 270,000
Variable expenses:
Variable cost of goods sold* 88,236 104,935
Variable selling expenses 22,000 22,000
Total variable expenses 110,236 126,935
Contribution margin 159,764 143,065
Fixed expenses:
Manufacturing overhead 56,500 56,500
Selling and administrative 71,000 71,000
Total fixed expenses 127,500 127,500
Net operating income $32,264 $15,565
*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 4.60 pounds $2.70 per pound 12.42
Direct labor 0.40 hours $8.30 per hour 3.32
Variable manufacturing overhead 0.30 hours* $2.00 per hour 0.60
Total standard cost $16.34
*Based on machine-hours.

During June the plant produced 5,400 pools and incurred the following costs:
a. Purchased 30,808 pounds of materials at a cost of $3.10 per pound.
b. Used 24,740 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c. Worked 2,660 direct labor-hours at a cost of $7.90 per hour.
d. Incurred variable manufacturing overhead cost totaling $4,800 for the month. A total of 1,920 machine-hours was recorded.
e. It is the company's policy to close all variances to cost of goods sold on a monthly basis.

Required:
1. Compute the following variance for June: (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)
a. Direct materials price and quantity variances.
b. Direct labor rate and efficiently variances
c. Variable overhead spending and efficiently variances
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. What impact did this figure have on the company's income statement? Show computations.
3. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible cause of these variances. Based on the computations in (1), the 2 most significant variances would be the direct materials quantity variance and direct labor rate variance.
Powered by