P11-2A Compute variances, and prepare income statement Ayala Corporation accumul

ID: 2422379 • Letter: P

Question

P11-2A Compute variances, and prepare income statement Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017. Cost and Production Data Actual Standard Raw materials unit cost $2.30 $2.10 Raw materials units used 11,000 10,000 Direct labor payroll $120,960 $120,000 Direct labor hours worked 14,400 15,000 Manufacturing overhead incurred $189,500 Manufacturing overhead applied $189,000 Machine hours expected to be used at normal capacity 42,500 Budgeted fixed overhead for June $55,250 Variable overhead rate per machine hour $3.00 Fixed overhead rate per machine hour $1.30 Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount used. Instructions (a) Compute all of the variances for (1) direct materials and (2) direct labor. (b) Compute the total overhead variance. (c) Prepare an income statement for management. (Ignore income taxes.) NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . (a)(1) Total Materials Variance: ( AQ X AP ) minus ( SQ X SP) ) ( Value X Value ) minus ( Value X Value ) = ? minus ? = Value Materials price variance: ( AQ X AP ) minus ( AQ X SP ) ( Value X Value ) minus ( Value X Value ) = ? minus ? = Value Materials quantity variance: ( AQ X SP ) minus ( SQ X SP ) ( Value X Value ) minus ( Value X Value ) = ? minus ? = Value (a)(2) Total Labor Variance: ( AH X AR ) minus ( SH X SR ) ( Value X Value ) minus ( Value X Value ) = ? minus ? = Value Labor Price variance: ( AH X AR ) minus ( AH X SR ) ( Value X Value ) minus ( Value X Value ) = ? minus ? = Value Labor quantity variance: ( AH X SR ) minus ( SH X SR ) ( Value X Value ) minus ( Value X Value ) = ? minus ? = Value (b) Total Overhead Variance: = Actual minus Overhead Overhead Applied = Value minus Value = Value (c ) AYALA CORPORATION Income Statement For the Month Ended June 30, 2017 Sales revenue Value Cost of goods sold (at standard) ? Gross profit (at standard) ? Variances Material price Value Materials quantity Value Labor price Value Labor quantity Value Overhead Value Total variance - favorable ? Gross profit (actual) ? Selling and administrative expenses Value Net income ? P11-2A Compute variances, and prepare income statement Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017. Cost and Production Data Actual Standard Raw materials unit cost $2.30 $2.10 Raw materials units used 11,000 10,000 Direct labor payroll $120,960 $120,000 Direct labor hours worked 14,400 15,000 Manufacturing overhead incurred $189,500 Manufacturing overhead applied $189,000 Machine hours expected to be used at normal capacity 42,500 Budgeted fixed overhead for June $55,250 Variable overhead rate per machine hour $3.00 Fixed overhead rate per machine hour $1.30 Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount used. Instructions (a) Compute all of the variances for (1) direct materials and (2) direct labor. (b) Compute the total overhead variance. (c) Prepare an income statement for management. (Ignore income taxes.) NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

Explanation / Answer

Total materials variance

(AQ*AP) - (SQ*SP)

(11,000*2.3) - (10,000*2.1) = 4,300(A)

Materail price varaince

(AQ*AP) - (AQ*SP)

(11,000*2.3) - (11,000*2.1)

25,300 - 23,100 = 2,200(A)

Material Quantity variance

(AQ *SP) - (SQ *SP)

(11,000 *2.10 )- (10,000*2.1)

23,100 - 21,000 = 2,100(A)

Total labor variance

(AH * AR) - (SH *SR)

(14,400*8.4) - (15,000*8)

120,960 - $120,000 = 960(A)

Labor price Variance

(AH * AR ) - (AH * SR)

(14,400 *8.4) - (14,400 *8)

120,960 - 115,200 = 5,760(A)

Labor Qty Variance

14,400*8 - 15,000*8

115,200 - 120,000

= 4,800(F)

Manufacturing overhead = 189,500 - 189,000 = 500(A)

Sales (Revenue) $400,000

less:Cost of goods sold 330,000

Gross profit 70,000

Variance

Material Price 2200(A)

Material quantity 2100(A)

Labor price variance 5760(A)

Labor Efficiency variance 4800(F)

Overhead 500(A)

total variable 5760(A)

Gross profit 64,240

Less:Selling and administrative expense 40,000

Net income 24,240