Using the following data from the records of Starts Inc. for November of the current year, prepare an income statement (through operating income) that includes variances for presentation to management: Administrative expenses $ 63,200 Cost of goods sold (at standard) 350,000 Direct materials quantity variance—favorable 550 Direct materials price variance—favorable 3,200 Direct labor time variance—unfavorable 600 Direct labor rate variance—favorable 750 Factory overhead volume variance—unfavorable 8,000 Factory overhead controllable variance—favorable 2,500 Sales 690,000 Selling expenses 172,000
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.
Using the following data from the records of Starts Inc. for November of the current year, prepare an income statement (through operating income) that includes variances for presentation to management:
| Administrative expenses |
$ 63,200 |
| Cost of goods sold (at standard) |
350,000 |
| Direct materials quantity variance—favorable |
550 |
| Direct materials price variance—favorable |
3,200 |
| Direct labor time variance—unfavorable |
600 |
| Direct labor rate variance—favorable |
750 |
| Factory overhead volume variance—unfavorable |
8,000 |
| Factory overhead controllable variance—favorable |
2,500 |
| Sales |
690,000 |
| Selling expenses |
172,000 |
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