Question

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’ 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 labor ....... 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:
• 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.

Required
A. Calculate all material, labor, variable overhead, and fixed overhead variances.
B. Interpret the material and labor variances. What do they indicate about the company’s performance?
C. Based on your response to question B, what areas need to be investigated?
D. How could the company control or better manage its operations?
E. In your opinion, what are the best options? Why?



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  • CreatedMarch 11, 2015
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