Question

Swain Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. The company’s beginning balance in Retained Earnings is $59,000. It sells one product for $176 per unit and it generated total sales during the period of $635,360 while incurring selling and administrative expenses of $55,100. Swain Company does not have any variable manufacturing overhead costs and its standard cost card for its only product is as follows:

	(1) Standard Quantity or Hours		(2) Standard Price or Rate			Standard Cost (1) x (2)
Direct materials	8.0	pounds	$	9	per pound	$	72
Direct labor	2.0	hours	$	12	per hour		24
Fixed manufacturing overhead	2.0	hours	$	20	per hour		40
Total standard cost per unit						$	136

During the period, Swain recorded the following variances:

Materials price variance	$	3,675	U
Materials quantity variance	$	9,550	F
Labor rate variance	$	4,175	U
Labor efficiency variance	$	6,875	U
Fixed overhead budget variance	$	1,575	U
Fixed overhead volume variance	$	6,600	F

Required:

1. When Swain closes its standard cost variances, the cost of goods sold will increase (decrease) by how much?

2. Prepare an income statement for the year.

3. What is Swain’s ending balance in Retained Earnings?

Answer 1

رال increase by $150 The cost of goods sold will Calculation: Materials Price variance Materials quantity variance Labor rate variance Labor efficiency variance fixed overhead budget variance fixed overhead volume variance Increase in cost of goods sold $3,675 $(9,550) $ 4,175 $ 6,875 $1,575 $(6,600) $ 150 Swain company Income Statement for the Year Sales $635, 360 cost of goods sold at standard $490,960 Total variance adjustments & 150 Less: Cost of goods sold $491, 110 Gross margin $144,250 less. selling and administrative expenses $ 55,100 Met operating income $89, 150

Calculation? Mumber of units sold = Total sales & selling Price pero - $635,360 – $176 - 3,610 units Cost of goods sold at standard = Number of Units sold X Total standard cost per unit) 3,610 * $ 136 - $ 490,960 Ending Balance in retained earnings Calculation: $ 148,150 Beginning balance in retained earnings Add: Net operating income Ending balance in retained earnings $59,000 $89, 150 $148, 150