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Wednesday, October 14, 2015

Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant

PROBLEM 11–14 Comprehensive Variance Analysis [LO2, LO3, LO4]

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:

Average per Month (in days)
1 2 3 4
Move time per unit . . . . . . . . . . . . . . . . . . . 0.4 0.3 0.4 0.4
Process time per unit . . . . . . . . . . . . . . . . 2.1 2.0 1.9 1.8
Wait time per order before start
of production . . . . . . . . . . . . . . . . . . . . . 16.0 17.5 19.0 20.5
Queue time per unit . . . . . . . . . . . . . . . . . 4.3 5.0 5.8 6.7
Inspection time per unit . . . . . . . . . . . . . . . 0.6 0.7 0.7 0.6

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
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 fi xed expenses . . . . . . . . . . . . . . . . . . . . 214,000 214,000
Net operating income . . . . . . . . . . . . . . . . . . . $ 36,000 $ 19,710
*Contains direct materials, direct labor, and variable manufacturing overhead.

Standard Quantity Standard Price Standard
or Hours or Rate Cost
Direct materials . . . . . . . . . . . . . . . . . 3.0 pounds $2.00 per pound $ 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 cost . . . . . . . . . . . . . . $12.00
*Based on machine-hours.
Standard Costs and Operating Performance Measures 483

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.
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 variable manufacturing overhead cost totaling $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:
a. Direct materials price and quantity variances.
b. Direct labor rate and efficiency variances.
c. Variable overhead rate and efficiency 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 causes of these variances.

Click here for the solution: Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant