Question

Forsyth Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. During the year, the company produced and sold 10,000 units at a price of $135 per unit. Its standard cost per unit produced is $105 and its selling and administrative expenses totaled $235,000. Forsyth does not have any variable manufacturing overhead costs and it recorded the following variances during the year:

Materials price variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,500 F
Materials quantity variance . . . . . . . . . . . . . . . . . . . . . . . . $10,200 U
Labor rate variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,500 U
Labor efficiency variance . . . . . . . . . . . . . . . . . . . . . . . . . . $4,400 F
Fixed overhead budget variance . . . . . . . . . . . . . . . . . . . . . $2,500 F
Fixed overhead volume variance . . . . . . . . . . . . . . . . . . . . $12,000 F
Required:
1. When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much?
2. Using Exhibit 10B-5 as a guide, prepare an income statement for the year.
Dylan Corporation
Income Statement
For the year ended 12/31/xx
dollars in thousands
Sales 5270
Cost of goods sold at stanadard 4335
Total variance adustments 36
Cost of goods sold 4371
Gross margin 899
Selling and administrative expenses 450
Net operating income 449

Answer 1

See below

Step-by-step explanation:

1. Computation of cost of goods sold

Materials Price Variance

$6,500 F

Materials Quantity Variance

$10,200 U

Labor Rate Variance

$3,500 U

Labor Efficiency Variance

$4,400 F

Fixed Overhead budget variance

$2,500 F

Fixed Overhead volume variance

$12,000 F

Cost of goods sold

$11,700

2. Net operating statement

Sales[$153 × 10,000]

$1,530,000

Less: Cost of goods sold

Cost of goods sold at standard [$105 × 10,000]

$1,050,000

Cost of good sold adjusted

($11,700)

Variance adjustment Balance

$1,038,300

Gross profit

$491,700

Less selling and administrative expenses

($235,000)

Net operating income

$256,700