Final Exam Problem 1: Variance Analysis Miller Toy Company manufactures a plasti
ID: 2483792 • Letter: F
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Final Exam Problem 1: Variance Analysis 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: Miller Toy Company Budgeted Actual Sales (15,000 pools) $450,000 $450,000 Variable Expenses: Variable cost of goods sold* 180,000 196,290 Variable selling expenses 20,000 20,000 Total variable expenses 200,000 216,290 Contribution margin 250,000 233,710 Fixed Expenses: Manufacturing overhead 130,000 130,000 Selling and administrative 84,000 84,000 Total Fixed Expenses 214,000 214,000 Net Operating income $36,000 $19,710 *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 Qty Standard Price Standard or Hours or Rate Cost Direct materials 3.0 Lbs. $2.00 Per Lb. $6.00 Direct labor 0.8 hours $6.00 per hour 4.80 Variable manufacturing overhead 0.4 hours* $3.00 per hour 1.20 Total standard variable cost $12.00 *Based upon machine hours. Ms. Dunn has determined that during June the plant produced 15,000 pools and incurred the following costs: a. Purchased 60,000 pounds of materials at a cost of $1.95 per pound. There were no raw materials in inventory at the beginning of the month. b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored. c. Worked 11,800 direct labor-hours at a cost of $7.00 per hour. d. Incurred a total variable manufacturing overhead cost of $18,290 for the month. A total of 5,900 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: Place your answers on the Excel solution sheet. a. Direct materials price and quantity variances. b. Direct labor rate and efficiency variances. c. Variable manufacturing overhead spending and efficiency variances. 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for June. What impact did this figure have on the company's income statement? 3. Select the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances. Final Exam Problem 1: Variance Analysis 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: Miller Toy Company Budgeted Actual Sales (15,000 pools) $450,000 $450,000 Variable Expenses: Variable cost of goods sold* 180,000 196,290 Variable selling expenses 20,000 20,000 Total variable expenses 200,000 216,290 Contribution margin 250,000 233,710 Fixed Expenses: Manufacturing overhead 130,000 130,000 Selling and administrative 84,000 84,000 Total Fixed Expenses 214,000 214,000 Net Operating income $36,000 $19,710 *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 Qty Standard Price Standard or Hours or Rate Cost Direct materials 3.0 Lbs. $2.00 Per Lb. $6.00 Direct labor 0.8 hours $6.00 per hour 4.80 Variable manufacturing overhead 0.4 hours* $3.00 per hour 1.20 Total standard variable cost $12.00 *Based upon machine hours. Ms. Dunn has determined that during June the plant produced 15,000 pools and incurred the following costs: a. Purchased 60,000 pounds of materials at a cost of $1.95 per pound. There were no raw materials in inventory at the beginning of the month. b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored. c. Worked 11,800 direct labor-hours at a cost of $7.00 per hour. d. Incurred a total variable manufacturing overhead cost of $18,290 for the month. A total of 5,900 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: Place your answers on the Excel solution sheet. a. Direct materials price and quantity variances. b. Direct labor rate and efficiency variances. c. Variable manufacturing overhead spending and efficiency variances. 2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for June. What impact did this figure have on the company's income statement? 3. Select the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances.Explanation / Answer
a)Material price variance= AQ [AR-SR]
= 49200 [ 1.95- 2]
= - 2460 F
Material quantity variance = SR[AQ-SQ]
= 2[ 49200- (15000*3)]
= 2[ 49200- 45000]
= 8400 U
Labor rate variance =AH [AR-SR]
= 11800 [7- 6]
= 11800*1 = 11800 U
labor efficiency variance =SR[AH -SH]
= 6 [11800 - (15000*.8)]
= 6[11800- 12000]
= - 1200 F
Variable spending variance = AMH [AR-SR]]
= 18290 - [5900*3]
= 18920 - 17700
= 1220 U
Variable efficiency variance =SR [AH-SH]
= 3[5900- (15000*.4)
= 3[5900- 6000]
= - 300F
2)Net variance= 17460 U [-2460+8400+11800-1200+1220-300]
The overall variance has no effect on company income statement.
3) Labor rate variance (11800) and material quantity variance (8400) is the most significan tvariance
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