Question

chapter 9 p 4 q

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 $56,000. It sells one product for $164 per unit and it generated total sales during the period of $572,360 while incurring selling and administrative expenses of $55,400. 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	3.5	hours	$	12	per hour		42
Fixed manufacturing overhead	3.5	hours	$	20	per hour		70
Total standard cost per unit						$	147

During the period, Swain recorded the following variances:

Materials price variance	$	3,375	U
Materials quantity variance	$	8,950	F
Labor rate variance	$	3,875	U
Labor efficiency variance	$	6,575	U
Fixed overhead budget variance	$	1,275	U
Fixed overhead volume variance	$	5,475	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