Question

Exercise 9B-1 Standard Cost Flows; Income Statement Preparation (LO9-8) Forsyth Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. During the year, the company produced and sold 10,000 units at a price of $143 per unit. Its standard cost per unit produced is $113 and its selling and administrative expenses totaled $239,000. Forsyth does not have any variable manufacturing overhead costs and it recorded the following variances during the year Materials price variance Materials quantity variance Laborrate variance Labor efficiency variance Fived overhead budget var lance Fixed overhead volume variance $ 7,300F $11.000 U 54, NU $ 5.200 F $ 3,300 $12.00 Required: 1 When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much? 2. Prepare an income statement for the year

Answer 1

1) Net variance

Material price variance	7300 F
Material quantity variance	11000 U
Labor rate variance	4300 U
Labor efficiency variance	5200 F
Fixed overhead budget variance	3300 F
Fixed overhead volume variance	12800 F
Net variance	13300 F

Cost of goods sold decrease by $13300

2) Income statement

Sales	1430000
Cost of goods sold (113*10000-13300)	-1116700
Gross profit	313300
Selling and administrative expense	-239000
Operating income	74300