Jason Yao operates a successful machining shop. Jason recently submitted the following bid for a job:

Jason€™s customer negotiated the bid down to $24,000. After completing the job, Jason calculated that he spent $7,200 on materials and incurred 550 labor hours at a cost of $8,000. Jason therefore believes that he made a profit of $24,000 - $7,200 materials cost - $8,000 labor cost - $8,000 overhead cost = $800 on the job.

Required:
a. Do you agree with Jason€™s assessment regarding the amount of profit he made from the job?
b. Perform a variance analysis that shows the various reasons as to why actual profit differed from budgeted profit.
c. Why does the variance analysis for part (b) include a flexiblebudget?

Transcribed Image Text:

Direct materials Labor Fixed overhead Total cost Profit at 10% Bid $7,000 500 hours $15/hour 7500 7500 $22,000 2,200 $24.200 100% of labor cost