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London Company s Forest City Plant produces precast ingots for industrial use. Anne - Marie Gosnell, who was recently appointed general manager of the Forest
London Companys Forest City Plant produces precast ingots for industrial use. AnneMarie Gosnell, who was recently appointed general manager of the Forest City Plant, has just been handed the plants income statement for October. The statement is shown below.
Gosnell was shocked to see the poor results for the month, particularly since sales were exactly as budgeted. She stated, I sure hope the plant has a standard costing system in operation. If it doesnt I wont have the slightest idea of where to start looking for the problem.
Budgeted Actual
Sales ingots $ $
Variable expenses:
Variable cost of goods sold
Variable selling expenses
Total variable expenses
Contribution margin
Fixed expenses:
Manufacturing overhead
Selling and administrative
Total fixed expenses
Operating income loss $ $
Contains direct materials, direct labour, and variable manufacturing overhead.
The plant uses a standard costing system, with the standard variable cost per ingot details shown below:
Standard Quantity or Hours Standard Price or Rate Standard Cost
Direct materials kilograms $ per kilogram $
Direct labour hours $ per hour
Variable manufacturing overhead hours $ per hour
Total standard variable cost $
Based on machinehours.
Gosnell has determined that during October the plant produced ingots and incurred the following costs:
Purchased kilograms of materials at a cost of $ per kilogram. There were no raw materials in inventory at the beginning of the month.
Used kilograms of materials in production. Finished goods and work in process inventories are insignificant and can be ignored.
Worked direct labourhours at a cost of $ per hour.
Incurred a total variable manufacturing overhead cost of $ for the month. A total of machinehours were recorded. It is the companys policy to close all variances to cost of goods sold on a monthly basis.
Required:
Compute the following variances for October:
a Direct materials price and quantity variances. Indicate the effect of each variance by selecting F for favorable, U for unfavorable, and "None" for no effect ie zero variance
b Direct labour rate and efficiency variances. Indicate the effect of each variance by selecting F for favorable, U for unfavorable, and "None" for no effect ie zero variance
c Variable manufacturing overhead spending and efficiency variances. Indicate the effect of each variance by selecting F for favorable, U for unfavorable, and "None" for no effect ie zero variance
a Summarize the variances that you computed in requirement above by showing the net overall favourable or unfavourable variance for October. Indicate the effect of each variance by selecting F for favorable, U for unfavorable, and "None" for no effect ie zero variance
b What impact did net variance figure have on the companys income statement?
a Pick out the two most significant variances that you computed in requirement above. Select all that apply
b This part of the question is not part of your Connect assignment.
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