Using the following data from the records of Starts Inc. for November of the current year, prepare an income statement (through operating income) that includes variances for presentation to management: Administrative expenses $ 69,000 Cost of goods sold (at standard) 200,000 Direct materials quantity variance—favorable 4,000 Direct materials price variance—unfavorable 3,200 Direct labor time variance—unfavorable 1,600 Direct labor rate variance—favorable 1,500 Factory overhead volume variance—unfavorable 2,000 Factory overhead controllable variance—favorable 2,500 Sales 750,000 Selling expenses 245,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Using the following data from the records of Starts Inc. for November of the current year, prepare an income statement (through operating income) that includes variances for presentation to management:
| Administrative expenses |
$ 69,000 |
| Cost of goods sold (at standard) |
200,000 |
| Direct materials quantity variance—favorable |
4,000 |
| Direct materials price variance—unfavorable |
3,200 |
| Direct labor time variance—unfavorable |
1,600 |
| Direct labor rate variance—favorable |
1,500 |
| Factory |
2,000 |
| Factory overhead controllable variance—favorable |
2,500 |
| Sales |
750,000 |
| Selling expenses |
245,000 |
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