Help! Lopes Manufacturing Company uses a standard cost accounting system to acco

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Lopes Manufacturing Company uses a standard cost accounting system to account for the manufacture of exhaust fans. In July 2012, it accumulates the following data relative to 1,800 units started and finished. Manufacturing overhead was applied on the basis of direct labor hours. Normal capacity for the month was 3,400 direct labor hours. At normal capacity, budgeted overhead costs were $20 per labor hour variable and $10 per labor hour fixed. Total budgeted fixed overhead costs were $34,000. Jobs finished during the month were sold for $280,000. Selling and administrative expenses were $25,000. Compute all of the variances for (1) direct materials and (2) direct labor. Compute the total overhead variance. Prepare an income statement for management. Ignore income taxes.

Explanation / Answer

(a).

all of the variances for direct materials. (AQ*AP)-(SQ*SP)

(21,000*3.40)-(22,000*3) = $71400-$66,000 = $5,400 U

Materials price variance= (AQ*AP)-(AQ*SP)

(21,000*3.40)-(21,000*3) = $71400- $63,000 = $8,400 U

Materials quantity variances= (AQ*SP)-(SQ*SP)

(21,000*3)-(22,000*3) = $63,000-$66,000 = $3,000 F

(a)(2) Compute all of the variances for direct labor

Total labor variance = (AH*AR)-(SH*SR)

(3450*11.80)-(3600*12.5) = $40,710 - $45,000 = $4290 F

(Actual rate = $12 wages paid / 3450 hrs worked)

(Standard rate = $13 )

Labor price variance = (AH*AR)-(AH*SR)

(3450*11.80)-(3450*12.5) = $40,710 - $43125 = $2415 F

Labor quantity variance = (AH*SR) - (SH*SR)

(3450*12.50) - (3600*12.5) = $43,125-$45,000 = $1,875 F

(b)

Total overhead variance = Actual Overhead-Overhead Applied

$101,500-$108,000 = $6,500 F

(C)

LOPES MANUFACTURING CORPORATION

Income Statement For the Month Ended July 31, 2012

Cost of goods dold at standard = Material(22,000*3) + Labour (3600*12.5) + Overhead applied $108,000

Sales $280,000 Cost of goods sold (at standard)* $219,000 Gross profit (at standard) 61,000 Variances Materials price $8,400 Materials quantity -3,000 Labor price -2415 Labor quantity -1875 Overhead controllable -6500 Total Variance -5390 Gross profit (actual) 66390 Selling and administrative expenses 25,000 Net income $41,390

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