Ayala Corporation accumulates the following data relative to jobs started and fi

Question

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.

Costs and Production Data

Actual

Standard

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

Compute all of the variances for (1) direct materials and (2) direct labor.

LQV $4,800 F

Compute the total overhead variance.

(c) Prepare an income statement for management. (Ignore income taxes.)

*** PLEASE COMPLETE FULL PROBLEM

Costs and Production Data

Actual

Standard

Raw materials unit cost $2.25 $2.10 Raw materials units 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 $193,500 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

Explanation / Answer

(a) Direct materials variance = ( actual rate - std rate) actual qty

                                                = ($2.25 - $2.10) 10,600

                                               = 1590(U)

(b) Direct material quantity variance = (10,600 - 10,000)2.1

                                                              = 1260(U)

(c) labor rate variance = (8.4 - 8) 14,400

                                        = 5760(U)

total overhead variace = Actual overhead - ovehead applied

                                      = $189,500 - $193,500

                                     = 4000(F)

(c) Income statement

Sale revenue $400,000 COGS at standard $334,500 Gross profit At standard $65,500 Variances: Material price 1590(U) Material qty variance 1260(U) Labor price varaince 5760(U) Labor qty variance 4800(F) Overehead variance 4000(F) Total vairiance 190(F) Gross profit ( Actual) 65,690 Selling and administrative expense 40,000 Net income $25,640

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