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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Income statement with variances

 Prepare an income statement through gross profit for Bellingham Company for the month ended March 31 using the variance data in Practice Exercises 23-1A through 23-4A. Assume that Bellingham sold 15,000 units at $172 per unit.

To determine

Income statement with variances:

The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement. In the income statement with variances, the balance of each variances account indicates the favorable and unfavorable variance at the end of the period.

Gross Profit:

Gross Profit is the difference between the net sales, and the cost of goods sold. Gross profit usually appears on the income statement of the company.

To prepare: An income statement through gross profit for the month ended March 31.

Explanation

The income statement through gross profit for the month ended March 31 for Company B is as follows:

Company B

Income statement through gross profit

For the month ended March 31

Sales (15,000 units×$172) 2,580,000
Less: Cost of goods sold- at standards (1) 1,463,625
Gross profit- at standards 1,116,375
Unfavorable $ (a)

Favorable

$ (b)

 
Less: Variances adjustments to gross profit at standards      
Direct materials price (5) 9,000    
Direct materials quantity (6)   (5,625)  
Direct labor rate (8)   (9,270)  
Direct labor time (9) 36,000    
Factory overhead controllable (11)   (1,230)  
Factory overhead volume (12)   (2,300)  
Net variances from standard cost – unfavorable (a) – (b)     26,575
Gross-profit     1,089,800

Table (1)

Working notes:

To determine the cost of goods sold-at standards:

Cost of goods sold at standard}=[Direct materials (2) + Directlabor (3)+ Factory overheads (4)]=$140,625+1,200,000+123,000=$1,463,625

(1)

Determine the direct materials:

Direct materials hours = [No of units required ×Stanadard poundsper unit×Stanadard price per unit]= 15,000 units × 2.5 lb.×$3.75=$140,625

(2)

Determine the direct labor:

Direct labor hours = [No of units required ×Stanadard hoursper unit×Stanadard hours rate per hour]= 15,000 units × 4 hours ×$20.00=$1,200,000

(3)

Determine the direct labor:

Direct factory overhead=(Number of unitsproduced×Standard hours per unit× )×(Standard variable overheadcost per unit+Standard fixedoverhead cost per unit)=15,000 units × 4 hours×($0.90+$1.15)=60,000 hours×(2.05)=$123,000

(4)

The direct materials price variance is determined as follows:

Direct materials price variance = [(Actual priceStandard price)× Actual quantity]=[($4.00$3.75)×36,000 lb.]=$0.25× 36,000=$9,000

(5)

The direct materials quantity variance is determined as follows:

Direct materials quantity variance = [(Actual quantityStandard quantity (7))× Standard price]=[(36,000 lb.37,500 lb.)× $3.75]=$1,500×$3

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