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Book/movie review
22/08/2022
Problem 5
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:
Budgeted Actual
Sales (15,000 pools)…………………………….. $240,000 $240,000
Less variable expenses:
Variable cost of goods sold*………………. 57,900 74,210
Variable selling expenses…………………. 18,000 18,000
Total variable expense………………………….. 75,900 92,210
Contribution margin……………………………. 164,100 147,790
Less fixed expenses:
Manufacturing overhead…………………… 66,000 66,000
Selling and administrative…………………. 84,000 84,000
Total fixed expenses…………………………… 150,000 150,000
Net operating income………………………….. $ 14,100 $(2,210)
_______ ———-
*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 Standard Price Standard
Of Hours or Rate Cost
Direct materials……………… 3.4 pounds $2.00 per pound $6.80
Direct labor………………….. 0.3 hour $7.50 per pound 2.25
Variable manufacturing overhead 0.2 hour $3.00 per pound 0.60
Total standard cost…………….. $9.65
______
Based on machine-hours.
Ms. Dunn has determined that during June the plant produced 6,000 pools and incurred the following costs:
It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required
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