27th Edition
WARREN + 5 others
ISBN: 9781337272094




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

Income statement with variances

 Prepare an income statement through gross profit for Dvorak Company for the month ended July 31 using the variance data in Practice Exercises 25-1B through 23-4B. Assume that Dvorak sold 1,000 units at $90 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 July 31.


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

Company D

Income statement through gross profit

For the month ended July 31

Sales (1,000 units×$90) 90,000
Less: Cost of goods sold- at standards (1) 69,500
Gross profit- at standards 20,500
Unfavorable $ (a)


$ (b)

Less: Variances adjustments to gross profit at standards      
Direct materials price (5) 2,250    
Direct materials quantity (6)   (1,250)  
Direct labor rate (8)   (1,400)  
Direct labor time (9) (3,400)  
Factory overhead controllable (11)   (200)  
Factory overhead volume (12) 300  
Net variances from standard cost – unfavorable (a) – (b)     3,700
Gross-profit     24,200

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)]=$12,500 + 51,000 + 6,000=$69,500


Determine the direct materials:

Direct materials hours = [No of units required ×Stanadard poundsper unit×Stanadard price per unit]= 1,000 units × 5 lb.×$2.5=$12,500


Determine the direct labor:

Direct labor hours = [No of units required ×Stanadard hoursper unit×Stanadard hours rate per hour]= 1,000 units × 3hours ×$17.00=$51,000


Determine the direct labor:

Direct factory overhead=(Number of unitsproduced×Standard hours per unit× )×(Standard variable overheadcost per unit+Standard fixedoverhead cost per unit)=1,000 units × 3 hours×($1.40+$0.60)=3,000 hours×(2.00)=$6,000


The direct materials price variance is determined as follows:

Direct materials price variance = [(Actual priceStandard price)× Actual quantity]=[($3.00$2.50)×4,500 lb.]=$0.5× 4,500=$2,250


The direct materials quantity variance is determined as follows:

Direct materials quantity variance = [(Actual quantityStandard quantity (7))× Standard price]=[(4,500 lb.5,000 lb.)× $2

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