Ayala Corporation accumulates the following
data relative to jobs started and finished during the month of June 2014.
Cost and production data Actual Standard
Raw
Material unit cost $2.25 $2.10
Raw
material unit used 10,600 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.)
(a) 1. Total materials variance:
|
|
( AQ X AP )
(10,600 X $2.25)
$23,850 |
–
–
|
( SQ X SP )
(10,000 X $2.10)
$21,000 |
=
|
$2,850 U
|
Materials
price variance:
|
|
( AQ X AP )
(10,600 X $2.25)
$23,850 |
–
–
|
( AQ X SP )
(10,600 X $2.10)
$22,260 |
=
|
$1,590 U
|
Materials
quantity variance:
|
|
( AQ X SP )
(10,600 X $2.10)
$22,260 |
–
–
|
( SQ X SP )
(10,000 X $2.10)
$21,000 |
=
|
$1,260 U
|
2. Total
labor variance:
|
|
( AH X AR )
(14,400 X $8.40*)
$120,960 |
–
–
|
( SH X SR )
(15,000 X $8.00**)
$120,000 |
=
|
$960 U
|
*$120,960 ÷ 14,400 **$120,000
÷ 15,000
Labor
price variance:
|
|
( AH X AR )
(14,400 X $8.40)
$120,960 |
–
–
|
( AH X SR )
(14,400 X $8.00)
$115,200 |
=
|
$5,760 U
|
Labor
quantity variance:
|
|
( AH X SR )
(14,400 X $8.00)
$115,200 |
–
–
|
( SH X SR )
(15,000 X $8.00)
$120,000 |
=
|
$4,800 F
|
(b) Total
overhead variance:
|
|
Actual
Overhead
$189,500
|
–
–
|
Overhead
Applied $193,500 (45,000* X $4.30) |
=
|
$4,000 F
|
*15,000
X 3
(c) AYALA
CORPORATION
Income
Statement
For
the Month Ended June 30, 2014
Sales
revenue........................................................................... $400,000
Cost of
goods sold (at standard)............................................ 334,500 *
Gross profit
(at standard)......................................................... 65,500
Variances
Materials
price................................................................. $ 1,590 U
Materials
quantity........................................................... 1,260 U
Labor
price....................................................................... 5,760 U
Labor
quantity................................................................. 4,800 F
Overhead......................................................................... 4,000 F
Total
variance—favorable................................... 190
Gross profit
(actual).................................................................. 65,690
Selling and
administrative expenses.................................... 40,000
Net income................................................................................. $ 25,690
*Materials
$21,000 + labor $120,000 + overhead applied $193,500.
