Question
Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014. .:. Overhead is applied on the basis
Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.
.:.
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.)
SOLUTION:
(a) 1. Total materials variance:
| (? AQ??X??AP?) (10,600 X $2.25) $23,850 |
| (??SQ??X??SP?) (10,000 X $2.10) $21,000 |
= |
$2,850?U |
Materials price variance:
| (? AQ??X??AP?) (10,600 X $2.25) $23,850 |
| (??AQ??X??SP?) (10,600 X $2.10) $22,260 |
= |
$1,590?U |
Materials quantity variance:
| (? AQ??X??SP?) (10,600 X $2.10) $22,260 |
| (??SQ??X??SP?) (10,000 X $2.10) $21,000 |
= |
$1,260?U |
2. Total labor variance:
| (? AH??X??AR?) (14,400 X $8.40*) $120,960 |
| (??SH??X??SR?) (15,000 X $8.00**) $120,000 |
= |
$960?U |
*$120,960 14,400 **$120,000 15,000
Labor price variance:
| (??AH??X??AR?) (14,400 X $8.40) $120,960 |
| (?AH???X??SR?) (14,400 X $8.00) $115,200 |
= |
$5,760?U |
Labor quantity variance:
| (??AH??X??SR?) (14,400 X $8.00) $115,200 |
| (?SH???X??SR?) (15,000 X $8.00) $120,000 |
= |
$4,800?F |
(b) Total overhead variance:
| Actual Overhead $189,500 |
| Overhead Applied $193,500 (45,000* X $4.30) |
= |
$4,000?F |
*15,000 X 3
(c) AYALA CORPORATION
Income Statement
For the Month Ended June 30, 2014
Sales revenue............................................................................... $400,000
Cost of goods sold (at standard).................................................. 334,500 *
Gross profit (at standard)............................................................. ??65,500
Variances
Materials price.................................................................... $ 1,590 U
Materials quantity............................................................... ?1,260 U
Labor price......................................................................... ?5,760 U
Labor quantity.................................................................... 4,800 F
Overhead............................................................................ 4,000 F
Total variancefavorable........................................ 190
Gross profit (actual)..................................................................... ??65,690
Selling and administrative expenses............................................. 40,000
Net income ................................................................................. $?25,690
*Materials $21,000 + labor $120,000 + overhead applied $193,500.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started