Question

The May 2018 revenue and cost information for Hartford Outfitters, Inc. follows:

Sales Revenue (at standard) $ 610,000

Cost of Goods Sold (at standard) 348,000

Direct Materials Cost Variance 1,500 F

Direct Materials Efficiency Variance 6,600 F

Direct Labor Cost Variance 4,200 U

Direct Labor Efficiency Variance 2,700 F

Variable Overhead Cost Variance 2,800 U

Variable Overhead Efficiency Variance 1,100 U

Fixed Overhead Cost Variance 2,300 U

Fixed Overhead Volume Variance 8,300 F


Required:

(a) Prepare a standard cost income statement for management through gross profit. Report all standard cost variances for management's use.

(b) Has management done a good or poor job of controlling​ costs? Explain. ​

(c) Overall, Hartford Outfitters management appears to have done a ___________ job at controlling costs. Total manufacturing variances are __________(favorable/unfavorable).

Answer 1

Hartford Outfitters, Inc.

Standard Cost Income Statement

Sales Revenue (at standard) $ 610,000

Cost of Goods Sold (at standard) 348,000

Gross Profit at Standard $ 262000

Direct Materials Cost Variance 1,500 F

Direct Materials Efficiency Variance 6,600 F

Direct Labor Efficiency Variance 2,700 F

Fixed Overhead Volume Variance 8,300 F

Direct Labor Cost Variance 4,200 U

Variable Overhead Cost Variance 2,800 U

Variable Overhead Efficiency Variance 1,100 U

Fixed Overhead Cost Variance 2,300 U

Total Manufacturing Variance 8700 F

Gross Profit at Cost 270,700

Unfavorable or debit variances are deducted from the gross profit . Credit or favorable variances are added to the gross profit.

b) Management should use the occurrence of desirable favorable variances as an opportunity to recognize the efficient performance of responsible managers and workers.

Yes the management has done a good job in controlling variances as the total manufacturing variance is favorable meaning manufacturing costs are less than the expected costs. This explains the efficiency in controlling operations etc.

c) Overall, Hartford Outfitters management appears to have done a _good___ job at controlling costs. Total manufacturing variances are ___favorable .