London Company\'s Forest City Plant produces precast ingots for industrial use.
ID: 2511452 • Letter: L
Question
London Company's Forest City Plant produces precast ingots for industrial use. Anne-Marie Gosnell, who was recently appointed general manager of the Forest City Plant, has just been handed the plant's income statement for October. The statement is shown below Gosnell was shocked to see the poor results for the month, particularly since sales were exactly as budgeted. She stated, "I sure hope the plant has a standard costing system in operation. If it doesn't, I won't have the slightest idea of where to start looking for the problem." $125,000 $125,000 cost of goods sold 20,425 25,530 Variable selling expenses 10,000 10,000 30,425 35,530 94,575 89,470 Total variable expenses Contribution margin Manuf Selling and administrative 30,000 29,500 37,500 37,500 67,500 67,000 s 27,075 $ 22,470 Total fixed expenses Operating income (loss) The plant uses a standard costing system, with the standard variable cost per ingot details shown below Cost 2.0 kilograms 0.54 hours $ 1.25 per kilogram $10.00 per hour s 1.00 per hour $2.50 5.40 0.27 Direct labour 0.27 hours overhead $8.17 Total standard variable cost Based on machiExplanation / Answer
1a)Material price variance :AQ[AR-SR]
= 4900 [1.5-1.25]
= 1225 U
Material quantity variance =SR[AQ-SQ]
= 1.25 [4900- (2500*2)]
1.25 [4900-5000]
125 F
B)Labor rate variance =AH[AR-SR
= 1800 [9.5-10]
= 900 F
Labor efficiency variance =SR[AH-SH]
10[1800 -(2500*.54)]
10[1800-1350]
4500 U
C)Variable overhead rate variance : AMH [AR-SR]
1080 - [900*1]
180 U
Variable overhead efficiency variance =SR[AH-SH]
1 [900- (2500*.27)]
1 [900-675]
225 U
2A)Net variance: 1225-125-900+4500+180+225=5105 U
B)cost of goods sold will increase by 5105
3)Labor efficiency variance(4500U) and material price variance(1225U) is a most significant variance
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