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 $52,000. It sells one product for $160 per unit and it generated total sales during the period of $552,000 while incurring selling and administrative expenses of $55,800. 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	5.0	pounds	$	7	per pound	$	35
Direct labor	2.5	hours	$	12	per hour		30
Fixed manufacturing overhead	2.5	hours	$	20	per hour		50
Total standard cost per unit						$	115

During the period, Swain recorded the following variances:

Materials price variance	$	3,275	U
Materials quantity variance	$	8,750	F
Labor rate variance	$	3,775	U
Labor efficiency variance	$	6,475	U
Fixed overhead budget variance	$	1,175	U
Fixed overhead volume variance	$	5,375	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

Answer:
1)
Particulars	Amount($)
Materials Price Variance	($3,275 ) U
Materials Quantity Variance	$ 8,750 F
Labor Rate Variance	($ 3,775) U
Labor Efficiency Variance	($6,475) U
Fixed Overhead Budget Variance	($1,175) U
Fixed Overhead Volume Variance	$ 5,375 F
Cost of Goods Sold will Decrease by	($ 575 ) U
2)
Unit Sales     = Sales / Selling Price    = $ 552,000 / $ 160    = 3,450 units
Swain Company Income Statement For the Year
Sales Revenue		$ 552,000
Less: Cost of Goods sold ( 3,450 Units x $ 115)	$ 396,750
Total Variance adjustments	$ 575	( $ 397,325 )
Gross Profit		$ 154,675
Less: Selling and administrative expenses		($ 55,800)
Net Operating Income		$ 98,875
3)
Particulars	Amount($)
Beginning Balance in retained earnings	$ 52,000
Add: net Income	$ 98,875
Ending Balance in retained earnings	$ 150,875