Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 23: Q22E (page 1312)

The May 2018 revenue and cost information for McDonald Outfitters, Inc. follows:

Sales Revenue (at standard) $ 610,000

Cost of Goods Sold (at standard) 348,000

Direct Materials Cost Variance 1,500 F

Direct Materials Efficiency Variance 6,600 F

Direct Labor Cost Variance 4,200 U

Direct Labor Efficiency Variance 2,700 F

Variable Overhead Cost Variance 2,800 U

Variable Overhead Efficiency Variance 1,100

Fixed Overhead Cost Variance 2,300 U

Fixed Overhead Volume Variance 8,300 F

Prepare a standard cost income statement for management through gross profit. Report all standard cost variances for management’s use. Has management done a good or poor job of controlling costs? Explain.

Short Answer

Expert verified

The standard cost income statement is prepared to show the gross profit of $270,700

Step by step solution

01

Computation of the Material Variance

McDonald Outfitter Inc

Standard Cost Income Statement

For the month ended May 31, 2018

Amount ($)

Amount ($)

Amount ($)

Sales Revenue (At standard)

610,000

Cost of goods sold (At standard)

348,000

Manufacturing Variance:

Direct Material Cost Variance

-1,500

Direct material Efficiency Variance

-6,600

Direct Labor cost Variance

4,200

Direct Labor Efficiency Variance

-2,700

Variable Overhead Cost Variance

2,800

Variable Overhead Efficiency Variance

1,100

Fixed Overhead Cost Variance

2,300

Fixed Overhead Volume Variance

-8,300

Total Manufacturing Variances

-8,700

Cost of goods sold (At Actual)

339,300

Gross Profit

270,700

02

Computation of the Labor Variance

The favorable variance of direct materials and direct labor means that the management did an excellent job controlling the costs. Unfavorable variances are less than the favorable variance, which means that the company's overall management has done a good job at controlling costs.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question:Explain the difference between a cost standard and an efficiency standard. Give an example of each.

Question:Tipton Company manufactures shirts. During June, Tipton made 1,200 shirts and gathered the following additional data:

Direct materials cost standard \(6.00 per yard of fabric

Direct materials efficiency standard 1.50 yards per shirt

Actual amount of fabric purchased and used 1,680 yards

Actual cost of fabric purchased and used \)10,500

Direct labor cost standard \(15.00 per DLHr

Direct labor efficiency standard 2.00 DLHr per shirt

Actual amount of direct labor hours 2,520 DLHr

Actual cost of direct labor \)36,540

Calculate the following variances:

7. Direct materials cost variance

8. Direct materials efficiency variance

9. Total direct materials variance

10. Direct labor cost variance

11. Direct labor efficiency variance

12. Total direct labor variance

Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.

CELL ONE TECHNOLOGIES

Flexible Budget

For the Month Ended July 31, 2018

Budget

Amount

per Unit

Units 6,000 7,500 9,500

Sales Revenue \(21 \)126,000 \(157,500 \)199,500

Variable Expenses 10 60,000 75,000 95,000

Contribution Margin 66,000 82,500 104,500

Fixed Expenses 55,000 55,000 55,000

Operating Income \(11,000 \)27,500 \(49,500

The company sold 9,500 units during July, and its actual operating income was as follows:

CELL ONE TECHNOLOGIES

Income Statement

For the Month Ended July 31, 2018

Sales Revenue \)206,500

Variable Expenses 100,100

Variable Expenses 106,400

Fixed Expenses 56,000

Operating Income $504,00

Requirements

1. Prepare a flexible budget performance report for July.

2. What was the effect on Cell One’s operating income of selling 2,000 units more than the static budget level of sales?

3. What is Cell One’s static budget variance for operating income?

4. Explain why the flexible budget performance report provides more useful information to Cell One’s managers than the simple static budget variance. What insights can Cell One’s managers draw from this performance report?

Explain the difference between a favorable and an unfavorable variance.

Martin, Inc. is a manufacturer of lead crystal glasses. The standard direct materialsquantity is 1.0 pound per glass at a cost of \(0.50 per pound. The actual result for onemonth’s production of 6,500 glasses was 1.2 pounds per glass, at a cost of \)0.30 perpound. Calculate the direct materials cost variance and the direct materials efficiencyvariance.
See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Business Operations

Read Explanation

Intermediate Accounting

Read Explanation

Influences On Business

Read Explanation

Nature of Business

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free