Jorgensen Corporation uses standard costs with its job order cost accounting sys

Question

Jorgensen Corporation uses standard costs with its job order cost accounting system. In January, an order (Job No. 12) for 1,000 units of Product B was received. The standard cost of one unit of Product B is as follows.

Normal capacity for the month was 4,020 machine hours. During January, the following transactions applicable to Job No. 12 occurred.

Prepare the January 2014 income statement for management. Assume selling and administrative expense were $3,100. (Round answers to the nearest whole dollar, e.g. 5,275.)

Direct materials 3 pounds at $1.30 per pound $3.90 Direct labor 1.80 hour at $10.00 per hour 18.00 Overhead 2 hours (variable $4.40 per machine hour; fixed $3.40 per machine hour) 15.60 Standard cost per unit $37.50

Explanation / Answer

Jorgensen Corporation

Income Statement

For the month ended January 31, 2017 (Amounts in $)

*Cost of goods sold (at standard) is calculated as follows:-

Total cost per unit = Direct Material+Direct Labor+Overhead

= $3.90+$18.00+[2 hrs*($4.40+$3.40)] = $3.90+$18.00+$15.60 = $37.50

Cost of goods sold (at standard) = 1,000 units*$37.50 = $37,500

Sales Revenue 85,000 Less: *Cost of goods sold (at standard) (37,500) Gross Profit (at standard) (A) 47,500 Variances Material Price [($1.30-$1.38)*3,400 pounds] 272 Unfavorable Material Quantity {[(1,000 units*3 pounds) - 3,400]*$1.30} 520 Unfavorable Labor Price [($10.00-$9.95)*1,860 hrs] 93 Favorable Labor Quantity {[(1,000 units*1.80 hrs) - 1,860]*$10.00} 600 Unfavorable Overhead [($15.60*1,000 units) - $16,850 1,250 Unfavorable Total Variance - Unfavorable (B) 2,549 Gross Profit (Actual) (A-B) 44,951 Less: Selling and Administrative Expenses (3,100) Net Income 41,851

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