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 Budget Actual
Sales (3,000 pools) $ 225,000 $ 225,000
Variable expenses:
Variable cost of goods sold* 44,520 56,975
Variable selling expenses
21,000

21,000
Total variable expenses
65,520

77,975
Contribution margin
159,480

147,025
Fixed expenses:
Manufacturing overhead 62,000 62,000
Selling and administrative 87,000 87,000
Total fixed expenses
149,000

149,000
Net operating income (loss) $ 10,480 $
(1,975

)
*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 Hours Standard Price
or Rate Standard Cost
Direct materials 3.7 pounds $
2.30

per pound $ 8.51
Direct labor 0.6 hours $
7.80

per hour 4.68
Variable manufacturing overhead 0.5 hours* $
3.30

per hour
1.65

Total standard cost per unit $ 14.84
*Based on machine-hours.

During June the plant produced 3,000 pools and incurred the following costs:

Purchased 16,100 pounds of materials at a cost of $2.75 per pound.
Used 10,900 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

Worked 2,400 direct labor-hours at a cost of $7.50 per hour.

Incurred variable manufacturing overhead cost totaling $6,660 for the month. A total of 1,800 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. Materials price and quantity variances.

b. 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.