Question

In: Accounting

1. Edison Electronics produces wireless headphones. Management planned to make and sell 9,000 sets of headphones...

1. Edison Electronics produces wireless headphones. Management planned to make and sell 9,000 sets of headphones during the year and determined the standard price and cost data to be as follows:

Standard price and variable costs

     Sales

$135.00 per unit

     Raw Materials

$33.20 per unit

     Direct Labor

$42.50 per unit

     Overhead

$19.70 per unit

Planned fixed costs

     Manufacturing overhead

$98,000

     Selling, general and administrative costs

$138,000

Edison Electronics actually produced and sold 9,700 sets of headphones for the year. Actual sales and costs for the year were as follows:

Sales

$1,285,300

Variable costs

     Raw Materials

$335,600

     Direct Labor

$405,500

     Overhead

$180,400

Fixed costs

     Manufacturing overhead

$102,500

     Selling, general and administrative costs

$134,800

Required:

  1. Prepare the static budgeted income statement showing the sales and each cost line as a separate line item in the income statement (note—amounts in the budgeted income statement should be the extended amounts and not the per unit prices and costs).
  2. Compare the actual income statement amounts with the amounts in the budgeted income statement and determine the amount of each variance and indicate whether each variance is favorable or unfavorable.

Solutions

Expert Solution

Budgeted Income Statement
Particulars Amount
Sales 1215000
Variable costs:
Raw Materials 298800
Direct Labor 382500
Overhead 177300
Contribution 356400
Fixed Cost:
Manufacturing OH 98000
Selling General and Admn Cost 138000
Gross Profit 120400
Statement Showing Cost Variances
Particulars Budgeted Actual Variance Favorable or
Unfavorable
Sales 1215000 1285300
Variable costs:
Raw Materials 298800 335600 13560 Unfavorable
Direct Labor 382500 405500 -6750 Favorable
Overhead 177300 180400 -10690 Favorable
Contribution 356400 363800
Fixed Cost:
Manufacturing OH 98000 102500 4500 Unfavorable
Selling General and Admn Cost 138000 134800 -3200 Favorable
Gross Profit 120400 126500

CALCULATIONS:
Raw Material Variance=335600-(9700*33.2)=13560
Direct Labour Variance=405500-(9700*42.5)=-6750
Overhead Variance=180400-(9700*19.7)=-10690


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