Question

Problem 23-2A (Part Level Submission) Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017. Costs and Production Data Actual Standard Raw materials unit cost $2.40 $2.25 Raw materials units used 11,500 10,600 Direct labor payroll $177,600 $171,760 Direct labor hours worked 14,800 15,200 Manufacturing overhead incurred $202,000 Manufacturing overhead applied $205,200 Machine hours expected to be used at normal capacity 41,500 Budgeted fixed overhead for June $62,250 Variable overhead rate per machine hour $3.00 Fixed overhead rate per machine hour $1.50 Overhead is applied on the basis of standard machine hours. 3.00 hours of machine time are required for each direct labor hour. The jobs were sold for $495,000. Selling and administrative expenses were $39,300. Assume that the amount of raw materials purchased equaled the amount used.

repare an income statement for management. (Ignore income taxes.)

Answer 1

Material Price Variance = (Std price - Actual price)*Actual Qty
= (2.25-2.4)*11500 = 2875 U

Material Qty Variance = (Std qty - Actual Qty)*Std price
=(10600-11500)*2.25 = 2025 U

Std labour rate per hour = 171760/15200 = 11.3
Actual labour rate per hour = 177600/14800 = 12

Labour Price variance = (std rate - actual rate)*Actual hrs
= (11.3 - 12)*14800 = 10360 U

Labour efficiency variance = (Std hrs for actual production - Actual hrs)*Std rate per hour
= (15200-14800)*11.3 = 4520 F

Total overhead variance = Actual overhead - Overhead applied
= 202000 - (45600*4.30) =202000 - 196080 = 5920 F
Overhead applied = Machine hrs for direct labour hours * Overhead rate
= (15200 DLhrs * 3 machine hrs ) * (3.0+1.3) = 45600*4.3 = 196080

INCOME STATEMENT

Sales Revenue                      495000
Less COGS (at standard)               391690*
Gross Profit                                  103310
Variances : -
    Material price         2875 U
    Material Qty          2025 U
    Labour Rate          10360 U
    Labour Efficiency   4520 F
    Overhead               5920 F
Total Variance                               4820 U
Gross Profit Actual                       98490
Less: Selling Expenses                39300
Net Profit                                     59190

*COGS (standard) = Material (10600*2.25) + Labour 171760 + Overhead applied 196080
= 23850+171760+196080 = 391690