Answer Happy

The May 2018 revenue and cost information for Chicago Outfitters, Inc. follows: (Click the icon to view the revenue and cost information.) Prepare a standard cost income statement for management through gross profit. Report all standard cost variances for management's use. Has management done a good or poor job of controlling costs? Explain. (Use a minus sign or parentheses to enter any contra expenses. Enter all other amounts as positive numbers.)

Has management done a good or poor job of controlling costs? Explain. Variances raise questions that can help pinpoint issues. Variances should be used to investigate and make changes, not punish employees. Good managers use variances as a guide for investigation, rather than merely to assign blame, and investigate favorable as well as unfavorable variances. If total manufacturing variances are favorable, management has done a good job of controlling costs. If total manufacturing variances are unfavorable, management has done a poor job of controlling costs. The income statement just prepared shows that the net effect of all the manufacturing cost variances is $8,000 favorable. Therefore, the operating income for Austin Outfitters in May 2018 is $8,000 more than it would have been if all the actual manufacturing costs had been equal to their standard costs.

Data table Sales Revenue (at standard) Cost of Goods Sold (at standard) Direct Materials Cost Variance Direct Materials Efficiency Variance Direct Labor Cost Variance Direct Labor Efficiency Variance Variable Overhead Cost Variance Variable Overhead Efficiency Variance Fixed Overhead Cost Variance Fixed Overhead Volume Variance $ 580,000 341,000 800 F 6,500 F 4,000 U 2,400 F 3,200 U 800 U 1,300 U 7,900 F

Gross Profit Standard Cost Income Statement For the Month Ended May 31, 2018