Income Statement with Variances Dvorak Company produces a product that requires
ID: 2556238 • Letter: I
Question
Income Statement with Variances Dvorak Company produces a product that requires five standard pounds per unit. The standard price is $2.50 per pound. Assume the company produced 1,000 units of product. 1,000 units required 4,500 pounds, which were purchased at $3.00 per pound. The product requires three standard hours per unit at a standard hourly rate of $17 per hour. The 1,000 units required 2,800 hours at an hourly rate of $16.50 per hour. The standard variable overhead cost per unit is $1.40 per hour. The actual variable factory overhead was $4,000. The standard fixed overhead cost per unit is $0.60 per hour at 3,500 hours, which is 100% of normal Prepare a 2016 income statement through gross profit for Dvorak Company. Assume Dvorak sold 1,000 units at $90 per unit. Enter almounts as positive numbers. If an amount does not require an entry or is zero, enter "O". Dvorak Company Income Statement Through Gross Profit For the Year Ended December 31, 2016 Sales Cost of goods sold-at standard Gross profit-at standard Favorable Unfavorable Less variances from standard cost: Direct materials price Direct materials quantity Direct labor rate Direct labor time Factory overhead controllable Factory overhead volume Gross profitExplanation / Answer
Workings
Calculation of Standard Cost
Cost of Goods Sold at Standard = Direct material Standard Cost + Direct Labour Standard Cost + Factory Overhead Recovered at Standard Rate
Direct material Std Cost = Std pound per unit * No. of Units * Std cost per pund
= 5*1000*2.5 = 12500
Direct Labour Std Cost = Std Hr per unit * No. of Units * Std Cost per labour hr
= 3*1000*17 = 51000
Factory OH Recovered at Std rate = Std Rate * Std hr per unit * No of Units
= (1.4+0.6)*3 *1000= 6000
So cost of Goods Sold at Std = 12500+51000+6000 = 69500
Gross Profit at Std = 90000-69500 = 20500
Calculation of Actual Cost
Actual Direct Material Cost = Actual pounds used * Actual rate per pund = 4500*3 = 13500
Actual Direct labour Cost = Actual hrs * Actual rate per hr = 2800*16.5= 46200
Actual Overhead Cost = Actual Variable OH + Fixed OH(Same as budgeted OH as fixed OH does not change with change in output)
= 4000+(Budgeted Hrs * Recovery Rate)
= 4000+(3500*0.6) = 4000+2100 = 6100
Actual Cost = 13500+46200+6100= 65800
Gross Profit = 90000-65800= 24200
Calculation of Variances
Direct Material Price Variance = (Std rate- Actual rate)*Actual pounds used = (2.5-3)*4500 = 2250 unfavourable
Direct Material Qty Variance = (Std Qty- Actual Pound used) * Std Rate = (5000-4500)*2.5 = 1250 favourable
Labour Rate variance = (Std Rate - Actual rate) * Actual Hrs = (17-16.5)*2800 = 1400 favourable
Labour Time variance = (Std hrs - Actual Hrs) * Std rate = (3000-2800)*17 = 3400 favourable
Factory OH Controllable Variance = Budgeted Factory OH - Actual OH
= (Budgeted Variable OH + Budgeted Fixed OH) - (Actual variable OH +Actual Fixed OH)
= [(Recovery Rate*Std Hrs for actual Units) + (Recover rate* Normal capacity)]
-
[(Actual variable OH) + Actual Fixed OH(same as Budgeted Fixed OH)]
= [(1.4*3000)+(0.6*3500)] - [4000+(0.6*3500)]
= (4200+2100) - (4000+2100) = 6300-6100 = 200 favourable
Factory OH Volume Var = Factory OH recovered at Std rate - Budgeted Factory OH
= 6000(Calculated above) - 6300(Calculated Above)
= 6000-6300 = 300 unfavourable
Requirement
Dvorak Company
Income Statement Through Gross Profit
For the Year Ended December 31, 2016
Particulars Amt Amt Amt Sales(1000*90) 90000 Cost of goods sold at Std 69500 Gross profit at Std 20500 Favourable Unfavourable Less Variances from Std Cost : Direct Materials Price 2250 Direct Materials Qty 1250 Labour Rate 1400 Labour Time 3400 Factory OH Controllable 200 Factory OH Volume 300 3700 Gross Profit 24200