orsyth Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. During the year, the company produced and sold 10,000 units at a price of $154 per unit. Its standard cost per unit produced is $124 and its selling and administrative expenses totaled $244,500. Forsyth does not have any variable manufacturing overhead costs and it recorded the following variances during the year: Materials price variance $ 8,400 F Materials quantity variance $ 12,100 U Labor rate variance $ 5,400 U Labor efficiency variance $ 6,300 F Fixed overhead budget variance $ 4,400 F Fixed overhead volume variance $ 13,900 F 1. When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much? 2. Prepare an income statement for the year.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
orsyth Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a
| Materials price variance | $ | 8,400 | F |
| Materials quantity variance | $ | 12,100 | U |
| Labor rate variance | $ | 5,400 | U |
| Labor efficiency variance | $ | 6,300 | F |
| Fixed overhead |
$ | 4,400 | F |
| Fixed overhead volume variance | $ | 13,900 | F |
1. When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much?
2. Prepare an income statement for the year.
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