Question

Dvorak Company produces a product that requires 5 standard pounds per unit. The standard price is $2.50 per pound. The company produced 1,000 units that required 4,500 pounds, which were purchased at $3.00 per pound. The product also requires 3 standard hours per unit at a standard hourly rate of $17 per hour. The 1,000 units produced required 2,800 hours at an hourly rate of $16.50 per hour. In addition, the standard variable overhead cost per unit is $1.40 per hour and the actual variable factory overhead was $4,000. Finally, the standard fixed overhead cost per unit is $0.60 per hour at 3,500 hours, which is 100% of normal capacity.

Prepare an income statement through gross profit for Dvorak Company for the month ended July 31. Assume that Dvorak sold 1,000 units at $90 per unit. If an amount box does not require an entry, leave it blank or enter "0".

Dvorak Company Income Statement Through Gross Profit For the Month Ended July 31 $90,000 Sales 69,500 Cost of goods sold-at standard 20,500 Gross profit-at standard Unfavorable Favorable Plus variance adjustments to gross profit-at standard: $ 2,250X Direct materials price х Direct materials quantity 1,250 1,400X Direct labor rate 3,400X Direct labor time 200 X Factory overhead controllable 300 Factory overhead volume 3,700 Net variance from standard cost-favorable $24,200 Gross profit-actual

Answer 1

Direct material price variance = (Actual price - Standard price) x Actual Quantity
= ($3 - $2.50) x 4500 = $2250 (U)

Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= (4500 - 5000) x $2.50 = $1250 (F)
Actual Quantity = 1000 x 5 = 5000

Direct Labor rate variance = (Actual rate - standard rate) x Actual hours
= ($16.50 - $17) x 2800 = $1400 (F)

Direct labor time variance = (Actual hours - standard hours) x Standard Rate
= (2800 - 3000) x $17 = $3400 (F)
Actual hours = 1000 x 3 = 3000 hours

Factory Overhead controllable variance = Actual Variable overhead - Standard variable overhead
= $4000 - (3000 x $1.4) = $200 (F)

Factory Overhead Volume variance = (Standard hours - hours for normal capacity) x Overhead rate
= (3000 - 3500) x $0.60 = $300 (U)

	Unfavorable	Favorable
Direct material price	$          2,250
Direct material quantity		$          1,250
Direct labor rate		$          1,400
Direct labor time		$          3,400
Factory overhead controllable		$              200
Factory overhead volume	$              300