Small Tykes World Company mass-produces chairs for children. The chairs can be purchased in a variety of colors, but only one basic design. The chairs are wildly popular, especially with young, highly educated parents. The design is the key to the company's success, and there seems to be no end to the demand for Small Tykes's products. The following data were extracted from the company's standard cost sheet:
Plastic 10 pounds at $4.50 per pound
Molding 3 feet at $3.00 per foot
Direct Labour 4 hours at $6.00 per hour
Variable overhead $3 per direct labor hour
Fixed Overhead $55,000 per period
Transactions during the month of June were as follows:
• Small Tykes purchased plastic at $4.45 per pound and issued 185,000 pounds to production.
• Small Tykes purchased molding at $3.10 per foot and issued 50,000 feet to production.
• The direct labor payroll totaled $435,000 for 72,500 hours.
• Total overhead costs were $275,000, including $221,125 of variable overhead.
• Small Tykes produced 18,000 chairs during the month.
I have completed #1
1) Calculate all material, labor, variable overhead, and fixed overhead variances.
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Plastic
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Molding
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Direct Material price variance:
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$ 9250 F
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$ 5000 U
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Direct Material usage variance:
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$ 22500 U
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$ 12000 F
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Labor
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Direct labor rate variance:
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$0
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Direct labor efficiency variance:
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$ 3000 F
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Variable Overhead
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Variable overhead spending variance:
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$ 3625 U
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Variable overhead efficiency variance:
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$ 1500 U
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Fixed Overhead Variances
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Fixed overhead spending variance:
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$ 1125 F
0
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Fixed overhead volume variance:
2)Interpret the material and labor variances. What do they indicate about the comanys performance?
3)On the basis of your response to #2, what areas need to be investigated?
4)How could the company control or better manage its operation?
5)In your opinion, what are the best options? Why?
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