Allen Boating Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor
Allen uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:
Direct materials: 1 pound per unit; $11 per pound
Direct labor: 4 hours per unit; $19 per hour
Allen produced 4,000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 7,500 pounds of direct materials and actual total materials costs were $99,300.
What is the direct materials efficiency variance?
A) $44,000 U
B) $38,500 U
C) $44,000 F
D) $38,500 F
B .B) Direct materials efficiency variance = (Actual quantity - Standard quantity) x Standard cost
Direct materials efficiency variance = (7,500 pounds - 4,000 pounds) x $11 per pound = $38,500 Unfavorable
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Machino, Inc. began operations on January 1, 2014. During 2016, management decided to change from average-cost method to FIFO for its merchandise inventories. The change was effective at January 1, 2016. Management determined that cost of goods sold for each method would be:
Cost of Goods Sold 2016 2015 2014 Average cost method $160,000 $130,000 $140,000 FIFO method $120,000 $110,000 $115,000 The company's statements as reported under average-cost before implementing the accounting change for 2016, 2015, and 2014, respectively, are presented below. The income tax rate for Machino is 40%. Machino, Inc. Comparative Income Statements For the Years Ended December 31 2016 2015 2014 Sales $550,000 $475,000 $445,000 Cost of Goods Sold (160,000) (130,000) (140,000) Operating Expenses (70,000) (50,000) (35,000) Income before Taxes $320,000 $295,000 $270,000 Tax Expense (40%) (128,000) (118,000) (108,000) Net Income after Tax $192,000 $177,000 $162,000 Required: 1) Prepare the comparative income statements for Machino, Inc. after the change to FIFO. 2) Determine the after-tax cumulative effect in retained earnings at January 1, 2016. 3) Prepare the journal entry on January 1, 2016 for the change in accounting principle. What will be an ideal response?