P11-2A Ayala Corporation accumulates the following data relative to jobs started
ID: 2575582 • Letter: P
Question
P11-2A Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2017. Costs and Production Data $2.25 10,600 10,000 $120,000 15,000 Machine hours expected to he used at normal capacity Budgeted fixed overhead for June Variable overhead rate per machine hour Fixed overhead rate per machine hour $193,500 55,250 $1.30 Overhead is applied on the basis of standard machine bours. 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 (a) Compute all of the varlances for (1) direct materials and (2) direct labor (b) Compute the total overhead variance. (c) Prepare an income statement for management. (Tgnore income taxes.) (a) LOV $4,800 FExplanation / Answer
(a) (1) Direct materials variances
Material Usage Variance = (Standard quantity - Actual Quantity) * Standard Rate
= (10,000-10,600)*2.1
= 1260A
Material Pricde Variance = (Standard Rate - Actual Rate)*Actual Quantity
= (2.1 - 2.25)*10,600
= 1590A
Total Material Variance = Standard Material Cost - Actual Material Cost
= 21,000 - 23,850
= 2850A
(2) Direct Labour Variance
Labour Quantity Variance = (Standard quantity - Actual Quantity) * Standard Rate
= (15,000-14,400)*8
= 4800F
Labour Price Variance = (Standard Rate - Actual Rate)*Actual Quantity
= (2.1 - 2.25)*10,600
= 1590A
Total labour Variance = Standard Labour Cost - Actual Labour Cost
= 1,20,000 - 1,20,960
= 960A
(b) Total Overhead Variance = Total absorbed cost - Actual Overhead Cost
= 43,200hrs*(3+1.3) - 1,89,500
= 1,85,760 - 1,89,500
= 3740A
(c) Income Statement
Sales (A) = $ 4,00,000
Less:
(i)Cost of Manufacturing
Material = $23,850
Labour = $ 1,20,960
VariableOverhead = $1,29,600
Fixed Overhead = $ 59,900
Total Manufacturing Cost (B) = $ 3,34,310
(ii) Selling and Administrative Expenses (C) = $ 40,000
Net Profit (A-B-C) = $ 25690
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