Sales (15,000 pools) $ 675,000 $ 675,000 Variable expenses:     Variable cost of goods sold*    435,000    461,890 Variable selling expenses     20,000     20,000 Total variable expenses    455,000    481,890 Contribution margin    220,000    193,110 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 (loss) $   6,000 $  Direct materials 3.0 pounds $5.00 per pound $ 15.00 Direct labor 0.8 hours $16.00 per hour 12.80 Variable manufacturing overhead 0.4 hours* $3.00 per hour 1.20 Total standard cost per unit $29.00 During June the plant produced 15,000 pools and incurred the following costs: Purchased 60,000 pounds of materials at a cost of $4.95 per pound. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) Worked 11,800 direct labor-hours at a cost of $17.00 per hour. 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. Compute the following variances for June: Materials price and quantity variances. Labor rate and efficiency variances. Variable overhead rate and efficiency variances. 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. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances.

Sales (15,000 pools)

$ 675,000

$ 675,000

Variable expenses:

 

 

Variable cost of goods sold*

   435,000

   461,890

Variable selling expenses

    20,000

    20,000

Total variable expenses

   455,000

   481,890

Contribution margin

   220,000

   193,110

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 (loss)

$   6,000

Direct materials

3.0 pounds

$5.00 per pound

$ 15.00

Direct labor

0.8 hours

$16.00 per hour

12.80

Variable manufacturing overhead

0.4 hours*

$3.00 per hour

1.20

Total standard cost per unit $29.00

During June the plant produced 15,000 pools and incurred the following costs:

  1. Purchased 60,000 pounds of materials at a cost of $4.95 per pound.

  2. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

  3. Worked 11,800 direct labor-hours at a cost of $17.00 per hour.

  4. 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.

  1. Compute the following variances for June:

    1. Materials price and quantity variances.

    2. Labor rate and efficiency variances.

    3. 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.

 

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