?(This question is from Chapter 10-15 of Managerial accounting 16th edition by R

Question

?(This question is from Chapter 10-15 of Managerial accounting 16th edition by Ray Garrison)

Problem 10-15 Comprehensive Variance Analysis [LO10-1, L010-2, 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: Flexible Actual Budget Sales (7,000 pools) Variable expenses: $235,000 $235,000 Variable cost of goods sold 78,540 18,000 Variable selling expenses Total variable expenses Contribution margin Fixed expenses 96,420 18,000 96,540 114,420 138,460 120,580 Manufacturing overhead 54,000 54,000 69,000 69,000 123,000 123,000 $15,460 (2,420) Selling and administrative 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 or Standard Price Standard or Rate Cost Hours Direct materials 3.4 pounds 0.3 hours 0.6 hours $ 6.40 per hour 1.90 per hour 2.40 per pound$ 8.16 1.92 1.14 Direct labor Variable manufacturing overhead 11.22 Total standard cost per unit Based on machine-hours During June, the plant produced 7,000 pools and incurred the following costs: a. Purchased 28,800 pounds of materials at a cost of $2.85 per pound. b. Used 23,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 2,700 direct labor-hours at a cost of $6.10 per hour d. Incurred variable manufacturing overhead cost totaling $10,350 for the month. A total of 4,500 machine-hours was recorded It is the company's policy to close all variances to cost of goods sold on a monthly basis. 1a. Compute the following variances for June, materials price and quantity variances. 1b. Compute the following variances for June, labor rate and efficiency variances 1c. Compute the following variances for June, 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). Input all amounts as positive values.) Show less a. Material price variance Material quantity variance 1b. Labor rate variance Labor efficiency variance 1c. Variable overhead rate variance Variable overhead efficiency variance Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. (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.)

Explanation / Answer

1-a) Material price variance (Actual price - standard price )* AQ purchased (2.85-2.40)*28,800 12960 U Materials Quantity variance (AQ used - SQ allowed)*Standard price (23600-7000*3.4)*2.4 480 F 1-b) Labor rate variance (Actual rate - standard rate)*Actual hours (6.10-6.40)*2700 810 F Labor Efficiency variance (Actual hours - standard hours allowed)* Std rate (2700 - 7000*.3)*6.4 3840 U 1-c) Variable overhead rate variance (Actual rate - standard rate)*Actual machine hours (10350 - 4500*1.90) 1800 U Variable overhead Efficiency variance (Actual hours - standard hours allowed)* Std rate (4500 - 7000*.6)*1.90 570 U 2) Net Variance 17880 U Material price variance 12,960 U Material quantity variance 480 F labor rate variance 810 F labor efficiecny variance 3840 U variable overhead rate variance 1800 U variable overhead efficiency variance 570 U net variance 17,880 U

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