Problem 10-15 Comprehensive Variance Analysls [L010-1, LO10-2, LO10-3) Miller To

Question

Problem 10-15 Comprehensive Variance Analysls [L010-1, LO10-2, LO10-3) 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 (8,000 pools) Variable expenses: $290,000 $290,000 Variable cost of goods sold 104,400 124,770 Variable selling expenses Total variable expenses Contribution margin Fixed expenses 20,000 20,000 24,400 144,770 165,600 145,230 Manufacturing overhead Selling and administrative 68,000 68,000 86,000 86,000 54,000 154,000 s 11,600 s (8,770) Total fixed expenses Net operating income (loss) 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 Standard Price Standard or Rate Cost Direct materials Direct labor Variable manufacturing overhead 0.4 hours or Hours 3.6 pounds 0.5 hours $7.70 per hour $3.20 per hour $2.20 per poundS 7.92 385 1.28 $ 13.05 Total standard cost "Based on machine-hours During June the plant produced 8,000 pools and incurred the following costs: a Purchased 33,800 pounds of materials at a cost of $2.65 per pound b.Used 28,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) C. Worked 4,600 direct labor-hours at a cost of $7 40 per hour d Incurred variable manufacturing overhead cost totaling $12,600 for the month. A total of 3,500 machine- hours was recorded It is the company's policy to close all variances to cost of goods sold on a monthly basis Required: 2

Explanation / Answer

Part 1 a

Material price variance = AQ *(AP-SP) = 33800*(2.65-2.20) =15210 U

Materials quantity variance = SP *(AQ-SQ) = 2.20*(28600-(8000*3.6)) = 2.20*(28600-28800) = -440 = 440 F

Part 1B

Labor rate variance = AH *(AR - SR) = 4600*(7.40-7.70) = -1380 =1380F

Labor efficiency variance = SR *(AH - SH) = 7.70*(4600-(8000*0.5))= 7.70*(4600-4000)=4620 U

Part 1C

Variable overhead rate variance = AH *(AR - SR) =3500*((12600/3500)-3.20)=3500*(3.60-3.20)=1400 U

Variable overhead efficiency variance = SR *(AH - SH) =3.20*(3500-(8000*0.4))=3.20*(3500-3200) =960U

Part 2

Part 3

Two significant variances are :

Materials quantity variance

Labor rate variance

Materials price variance 15210 U Materials quantity variance 440 F Labor rate variance 1380 F Labor efficiency variance 4620 U Variable overhead rate variance 1400 U Variable overhead efficiency variance 960 U Net variance 20370 U

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