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    Variances and income statement

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    Dinkel Manufacturing Corporation accumulates the following data relative to jobs started and finished during the month of June 2008.

    Costs and Production Data Actual Standard
    Raw materials unit cost $2.25 $2.00
    Raw materials units used 10,600 10,000
    Direct labor payroll $122,400 $120,000
    Direct labor hours worked 14,400 15,000
    Manufacturing overhead incurred $184,500
    Manufacturing overhead applied $189,000
    Machine hours expected to be used at normal capacity 42,500
    Budgeted fixed overhead for June $51,000
    Variable overhead rate per hour $3.00
    Fixed overhead rate per hour $1.20

    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.
    Compute variances, and prepare income statement.


    (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.

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    Solution Summary

    The solution explains how to calculate material, labor and overhead variances and prepare an income statement