P23-2A Compute variances, and prepare income statement

Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.

Cost and Production Data

Actual

Standard

Raw materials unit cost

$2.25

$2.10

Raw materials units used

10,600

10,000

Direct labor payroll

$120,960

$120,000

Direct labor hours worked

14,400

15,000

Manufacturing overhead incurred

$189,500

Manufacturing overhead applied

$193,500

Machine hours expected to be used at normal capacity

42,500

Budgeted fixed overhead for June

$55,250

Variable overhead rate per machine hour

$3.00

Fixed overhead rate per machine hour

$1.30

Overhead is applied on the basis of standard machine hours. Three hours of machine time are

required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative

expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount

used.

Instructions

(a) Compute all of the variances for (1) direct materials and (2) direct labor.

(b) Compute the total overhead variance.

(c) Prepare an income statement for management. (Ignore income taxes.)

NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

(a)(1)

Total Materials Variance:

(

AQ

X

AP

)

minus

(

SQ

X

SP)

)

(

Value

X

Value

)

minus

(

Value

X

Value

)

=

?

minus

?

=

Value

Materials price variance:

(

AQ

X

AP

)

minus

(

AQ

X

SP

)

(

Value

X

Value

)

minus

(

Value

X

Value

)

=

?

minus

?

=

Value

Materials quantity variance:

(

AQ

X

SP

)

minus

(

SQ

X

SP

)

(

Value

X

Value

)

minus

(

Value

X

Value

)

=

?

minus

?

=

Value

(a)(2)

Total Labor Variance:

(

AH

X

AR

)

minus

(

SH

X

SR

)

(

Value

X

Value

)

minus

(

Value

X

Value

)

=

?

minus

?

=

Value

Labor Price variance:

(

AH

X

AR

)

minus

(

AH

X

SR

)

(

Value

X

Value

)

minus

(

Value

X

Value

)

=

?

minus

?

=

Value

Labor quantity variance:

(

AH

X

SR

)

minus

(

SH

X

SR

)

(

Value

X

Value

)

minus

(

Value

X

Value

)

=

?

minus

?

=

Value

(b)

Total Overhead Variance:

=

Actual

minus

Overhead

Overhead

Applied

=

Value

minus

Value

=

Value

(c )

AYALA CORPORATION

Income Statement

For the Month Ended June 30, 2014

Sales revenue

Value

Cost of goods sold (at standard)

Value

Gross profit (at standard)

Value

Variances

Material price

Value

Materials quantity

Value

Labor price

Value

Labor quantity

Value

Overhead

Value

Total variance - favorable

Value

Gross profit (actual)

Value

Selling and administrative expenses

Value

Net income

Value