Compute variances and prepare standard cost income statement (Learning Objectives 4, 5, 6)

Happ and Sons makes ground covers to prevent weed growth. During May, the company produced and sold 44,000 rolls and recorded the following cost data:

Requirements 1. Compute the price and efficiency variances for direct materials and direct labor.
2. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance.
3. Prepare a standard cost income statement through gross profit to report all variances to management. Sales price was $10.60 per roll.
4. Happ and Sons intentionally purchased cheaper materials during May. Was the decision wise? Discuss the trade-off between the two materials variances.

Transcribed Image Text:

Direct materials: Standard (3 lb x $1.10 per pound).. Actual (136,600 lb x $1.05 per pound).. Direct labor: Standard (0.1 hr x $9.00 per hr) Actual (4,600 hr x $8.80 per hr) Manufacturing overhead: Standard: Standard Unit Cost Actual Total Cost _ $3.30 $143,430 Variable (0.2 machine hr x $9.00 per hr)............ $1.80 Fixed ($96,000 for static budget volume of 40,000 units and 8,000 machine hours)........... Actual....... Total manufacturing costs............ 0.90 40,480 2.40 4.20 168,800 $8.40 $352,710