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Chapter 23: Q14SE (page 1309)

Question:Use the following information to prepare a standard cost income statement for Mitchell Company for 2018.

Cost of Goods Sold (at standard) \( 366,000

Direct Labor Efficiency Variance \) 19,500 F

Sales Revenue (at standard) 570,000

Variable Overhead Efficiency Variance 3,300 U

Direct Materials Cost Variance 7,200 U

Fixed Overhead Volume Variance 12,500 F

Direct Materials Efficiency Variance 2,700 U

Selling and Administrative Expenses 71,000

Direct Labor Cost Variance 42,000 U

Variable Overhead Cost Variance 1,700 F

Fixed Overhead Cost Variance 2,100 F

Short Answer

Expert verified

Answer

The operating income of the Mitchell Company is computed as $113,600

Step by step solution

01

Definition of cost of sales revenue

The sales revenue is defined as the revenue collected by the company in exchange for the goods sold by the business to the customers.

02

Preparation standard cost Income statement

Mitchell Company
Standard Cost Income Statement
For the year ended December 31, 2018

Amount ($)

Amount ($)

Amount ($)

Sales Revenue at standard

570,000

Cost of goods sold at standard cost

366,000

Manufacturing Cost Variances:

Direct Materials Cost Variance

7,200

Direct Material Efficiency Variance

2,700

Direct Labor Cost Variance

42,000

Direct Labor Efficiency Variance

-19,500

Variable Overhead Cost Variance

-1,700

Variable Overhead Efficiency Variance

3,300

Fixed Overhead Cost Variance

-2,100

Fixed Overhead Volume Variance

-12,500

Total Manufacturing Variance

19,400

Cost of goods sold at actual cost

385,400

Gross Profit

184,600

Selling and Administrative Expenses

71,000

Operating Income

113,600

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Most popular questions from this chapter

Computing and journalizing standard cost variances

Middleton manufactures coffee mugs that it sells to other companies for customizing with their own logos. Middleton prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct Materials (0.2 lbs. @ \(0.25 per lb.) \) 0.05

Direct Labor (3 minutes @ \(0.14 per minute) 0.42

Manufacturing Overhead:

Variable (3 minutes @ \)0.06 per minute) \( 0.18

Fixed (3 minutes @ \)0.13 per minute) 0.39 0.57

Total Cost per Coffee Mug \( 1.04

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.

d. Actual direct labor usage of 197,000 minutes at a cost of \(33,490.

e. Actual overhead cost was \)10,835 variable and \(29,965 fixed.

f. Selling and administrative costs were \)130,000.

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct

labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production from Work in Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Middleton intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

The following direct labor variance analysis was performed for Morris.

AC × AQ \(19,800 SC × SQ \)14.00 per DLHr × 1,350 DLHr \(18,900 SC × AQ \)14.00 per DLHr × 1,800 DLHr \(11.00 per DLHr × 1,800 DLHr \)25,200 Efficiency Variance Cost Variance \(5,400 F \)6,300 U

Requirements

1. Record Morris’s direct labor journal entry (use Wages Payable).

2. Explain what management will do with this variance information.

List the eight product variances and the manager most likely responsible for each.

Question:What is management by exception?

Marsh Company uses a standard cost system and reports the following information for 2018:

Standards:

3 yards of cloth per unit at \(1.05 per yard

2 direct labor hours per unit at \)10.50 per hour

Overhead allocated at \(5.00 per direct labor hour

Actual:

2,600 yards of cloth were purchased at \)1.10 per yard

Employees worked 1,800 hours and were paid \(10.00 per hour

Actual variable overhead was \)1,700

Actual fixed overhead was \(7,300

Direct materials cost variance \) 130 U

Direct materials efficiency variance 420 F

Direct labor cost variance 900 F

Direct labor efficiency variance 2,100 F

Variable overhead cost variance 1,500 U

Variable overhead efficiency variance 1,500 F

Fixed overhead cost variance 600 U

Fixed overhead volume variance 1,600 F

Marsh produced 1,000 units of finished product in 2018. Record the journal entries to record direct materials, direct labor, variable overhead, and fixed overhead, assuming all expenditures were on account and there were no beginning or ending balances in the inventory accounts (all materials purchased were used in production, and all goods produced were sold). Record the journal entries to record the transfer to Finished Goods Inventory and Cost of Goods Sold (omit the journal entry for Sales Revenue). Adjust the Manufacturing Overhead account
See all solutions

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