Prepare an income statement for the year ended December 31, through the gross pr

ID: 2527837 • Letter: P

Question

Prepare an income statement for the year ended December 31, through the gross profit for Baxter Company using the following information: Baxter Company sold 8,800 units at $145 per unit. Normal production is 9,200 units. (Do not round fixed overhead rate calculation when determining fixed factory overhead volume variance.) Enter favorable variances as negative numbers. Standard: 5 yards per unit at $6.30 per yard Standard: 2.50 hours per unit at $15.00 Standard: variable overhead $1.05 per unit Standard: fixed overhead $202,400 (budgeted and actual amount) Actual yards used: 44,500 yards at $6.25 per yard Actual hours worked: 21,750 at $14.90 per hour Actual total factory overhead: $237,000 factory overhead: $237,000

Explanation / Answer

Income Statement

Particulars

Amount

Sales

8,800 x 145

1276000

Cost of Goods sold- Standard

WN 1

(818,840)

GP Standard

457,160

Variances from standard

Direct Materials Price

2225 Favourable

2225

Direct Materials Quantity

3150 Unfavorable

(3150)

Labor Rate

2175 favourable

2175

Labor Time

3750 Favorable

3750

Factory Controllable

43,400 Unfavorable

(43,400)

Factory Volume variance

8,800 favorable

8,800

Actual Profits

427,560

Working Note 1: Cost of Goods Sold Standard

5 yards x 8,800 x 6.30 = 277200

2,50 hrs x 8,800 x 15 = 330000

1.05 x 8,800 = 9240

Fixed overhead = 202,400

Total COGS standard = 818840

Working Note 2:

Direct Material Price Variance = (Standard Rate – Actual Rate) x Actual yards

= (6.30 – 6.25) x 44,500 = 2225

Direct Material Quantity Variance = (Standard Quantity required – Actual Quantity) x Standard Rate

= (5 x 8,800 – 44,500) x 6.30 = -3,150

Working Note 3:

Direct Labor Rate = (Standard Rate – Actual Rate) x Actual Hrs

= (15 – 14.90) x 21,750 = 2175

Direct Labor time = (Standard Time – Actual Time) x Standard Rate

= (2.50 x 8,800 – 21,750) x 15 = 3750

Working Note 4

Volume Variance = Absorbed overheads – Budgeted Overheads

Absorbed = Actual Output x Standard

= 8,800 x 202,400 / (9,200) = 193,600

Budgeted = 202,400

Volume Overheads = 193,600 – 202,400 = 8,800

Overhead Controllable = Actual Overheads - Absorbed overheads

= 237,000 – 193,600 = -43,400