Question

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 $150 per unit. Its standard cost per unit produced is $120 and its selling and administrative expenses totaled $242,500. Forsyth does not have any variable manufacturing overhead costs and it recorded the following variances during the year:

Materials price variance	$	8,000	F
Materials quantity variance	$	11,700	U
Labor rate variance	$	5,000	U
Labor efficiency variance	$	5,900	F
Fixed overhead budget variance	$	4,000	F
Fixed overhead volume variance	$	13,500	F

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.

Cost of goods sold
Materials price variance	8000 F
Materials quantity variance	11700 U
Labor rate variance	5000 U
Labor efficiency variance	5900 F
Fixed overhead budget variance	4000 F
Fixed overhead volume variance	13500 F
The Cost of goods sold will Decrease by	$14,700

2.

Income Statement
Sales (10000*150)		$1500000
Cost of goods sold at standard (10000* 120)	1200000
Total variance adjustments	-14700
Cost of goods sold		1185300
Gross profit		$314,700
Less: selling and administrative expenses		242,500
Net Operating Income		$72,200