Mod12 - Exercises PDF

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Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows:

Direct materials Direct labour Variable manufacturing overhead

Standard Quantity or Hours 1.40 kilograms 0.80 hours 0.40 machine-hours

Standard Price or Rate $4.00 per kilogram $6.00 per hour $2.00 per machine-hour

Total standard cost

Standard Cost $ 5.60 4.80 0.80 $11.20

The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 15,000 pools; the normal volume is 15,150 pools per month. Fixed costs are allocated using machine-hours.

Sales (15,000 pools) Less: Variable expenses: Variable cost of goods sold* Variable selling expenses Total variable expenses Contribution margin Less: Fixed expenses: Manufacturing overhead Selling and administrative Total fixed expenses Net income

Flexible Budgeted $ 450,000

Actual $ 450,000

168,000 20,000 188,000 262,000

188,623 20,000 208,623 241,377

130,000 84,000 214,000 $ 48,000

130,000 84,000 214,000 $ 27,377

*Contains direct materials, direct labour, and variable manufacturing overhead. Janet Dunn, the general manager of the Westwood Plant, wants to get things under control. She needs information about the operations in June since the income statement signalled that the problem could be due to the variable cost of goods sold. Dunn learns the following about operations and costs in June: a. 30,000 kilograms of materials were purchased at a cost of $3.70 per kilogram. b. 24,500 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignificant and can be ignored.) c. 11,800 direct labour-hours were worked at a cost of $7 per hour. d. Variable manufacturing overhead cost totalling $17,023 for the month was incurred. A total of 5,870 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. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Material price variance Material quantity variance

b. Direct labour rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

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Labour rate variance Labour efficiency variance

c. Variable overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Variable overhead spending variance Variable overhead efficiency variance

2-a. Summarize the variances you computed in part (1) by showing the net overall favourable or unfavourable variance for the month. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Net variance

2-b. What impact did this figure have on the company's income statement? This will cause the Cost of Goods Sold to

, thereby

net income by that amount.

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3. Pick out the two most significant variances you computed in part (1). (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Materials price variance Materials quantity variance Labour rate variance Variable overhead efficiency variance Variable overhead spending variance Labour efficiency variance

4. Compute the fixed overhead cost variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

Fixed overhead budget variance Fixed overhead volume variance

5. This part of the question is not part of your Connect assignment. References Worksheet

Learning Objective: 11-03 Compute and interpret variable cost flexible budget variances.

Learning Objective: Learning Objective: 11-04 11-02 Prepare and use Perform an analysis of fixed overhead costs. static and flexible budgets for performance analysis.

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