Question

Miller Toy Company manufactures a plastic swimming pool at itsWestwood Plant. The plant has been experiencing problems as shownby its June contribution format income statement below:

	Budgeted		Actual
Sales (4,000pools)	$	250,000	$	250,000
Variableexpenses:
Variable cost of goods sold*		66,760		81,190
Variable selling expenses		22,000		22,000
Total variableexpenses		88,760		103,190
Contributionmargin		161,240		146,810
Fixed expenses:
Manufacturing overhead		63,000		63,000
Selling and administrative		88,000		88,000
Total fixedexpenses		151,000		151,000
Net operating income(loss)	$	10,240	$	(4,190)

*Contains direct materials,direct labor, and variable manufacturing overhead.

Janet Dunn, who has just been appointed general manager of theWestwood Plant, has been given instructions to “get things undercontrol.” Upon reviewing the plant’s income statement, Ms. Dunn hasconcluded that the major problem lies in the variable cost of goodssold. She has been provided with the following standard cost perswimming pool:

	StandardQuantity or Hours	Standard Price or Rate		Standard Cost
Directmaterials	3.8pounds	$	2.40 per pound	$	9.12
Direct labor	0.7 hours	$	7.90 per hour		5.53
Variablemanufacturing overhead	0.6hours*	$	3.40 per hour		2.04
Total standardcost				$	16.69

*Based on machine-hours.

During June the plant produced 4,000pools and incurred the following costs:

a.	Purchased 20,200 pounds of materials at a cost of $2.85 perpound.
b.	Used 15,000 pounds of materials in production. (Finished goodsand work in process inventories are insignificant and can beignored.)
c.	Worked 3,400 direct labor-hoursat a cost of $7.60 per hour.
d.	Incurred variable manufacturing overhead cost totaling $10,260for the month. A total of 2,700 machine-hours was recorded.

It is the company’s policy toclose all variances to cost of goods sold on a monthly basis.

Required:

1.	Compute the following variancesfor June:

a.	Materials price and quantity variances. (Indicate theeffect of each variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zerovariance).)

b.	Labor rate and efficiency variances. (Indicate theeffect of each variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zerovariance).)

c.	Variable overhead rate and efficiency variances. (Do notround your intermediate calculations. Indicate the effect of eachvariance by selecting "F" for favorable, "U" for unfavorable, and"None" for no effect (i.e., zero variance).)

2.	Summarize the variances that you computed in (1) above byshowing the net overall favorable or unfavorable variance for themonth. (Input all values as positive amounts. Indicate theeffect of each variance by selecting "F" for favorable, "U" forunfavorable, and "None" for no effect (i.e., zerovariance).)

3.

Pick out the two most significant variances that you computed in(1) above. (You may select more than one answer. Singleclick the box with a check mark for correct answers and doubleclick to empty the box for the wrong answers.)

	Materials price variance
	Labor efficiency variance
	Variable overhead efficiencyvariance
	Labor rate variance
	Variable overhead ratevariance
	Materials quantity variance