Question

Income Statement with Variances 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 "U"

Answer 1

D COMPANY Income Statement Through Gross Profit For the year ended December 31,2014 Amount Amounts $90,000 Sales Less: Cost of Goods Sold-at standard Material 1,000 X5pounds x$2.50 per pound Labor cost 1,000 x3hrs $17 Factory overhead 1,000x3hrs X($1.40+$0.60) Gross profit at standard 12,500 51,000 6.000 69,500 20,500 FavorableUnfavorable $2.250 Less: Variances from standard cost Direct materials price variance Direct materials quantity Direct labor rate Direct labor time Factory overhead controllable Factory overhead volume Gross profit $1,250 1,400 3,400 200 300 3,700 24,200

Calculate Variances from standard costs: Direct Material Price Variance= (Standard Price - ActualPrice) Actual Quantity = ($2.5-$394,500 =$2,250 U Material Quantity Variance=(SQ-AQ) Standard Price =(5,000 -4,500)$2.4 = $1.250 F Direct labor rate variance = (Actual rate- Standard rate) Actual hours = ($16.50-$17)2,800 =$1,400 Favorable Direct labor time variance = (SH-AH)Standard Rate =(3,000 -2,800)$17 =$3,400 F

Factory overhead controllable = Standard cost - Actual cost =(3,000 $1.40) - $4,000 =$200F VolumeVariance = (Budgeted allowance based on standard hours allowed - Overhead charged to production) ((Budgetd fixed expenses + budgeted variance expenses) - ) Overhead charged to production =[(3,500hours $060)+(3,000 hours $1.4)]-[($0.6$1.4)x3,000hours =($2,100+$4,200)-$6,000 =$6,300-$6,000 =$300Unfavorable