| 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. | ||||
QUESTIONS:
Material Price Variance:
| Material Quantity Variance:
Labor Rate Variance: Variable Overhead Spending Variance:
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