In Zero Company's income statement, they report actual gross profit of $52,500 and the following variances: $$\begin{array} { l r l }
\text { Materials price } & \$ 420 \mathrm {~F} \
\text { Materials quantity } & 600 \mathrm {~F} \
\text { Labor price } & 420 \mathrm { U } \
\text { Labor quantity } & 1,000 \mathrm {~F} \
\text { Overhead } & 900 \mathrm {~F}
\end{array}$$ Zero would report gross profit at standard of
A)$46,660.
B)$47,500.
C)$50,000.
D)$53,340.

Question

In Zero Company's income statement, they report actual gross profit of $52,500 and the following variances: $$\begin{array} { l r l } 
\text { Materials price } & \$ 420  \mathrm {~F} \
\text { Materials quantity } & 600  \mathrm {~F} \
\text { Labor price } & 420  \mathrm { U } \
\text { Labor quantity } & 1,000 \mathrm {~F} \
\text { Overhead } & 900 \mathrm {~F}
\end{array}$$ Zero would report gross profit at standard of
A)$46,660.
B)$47,500.
C)$50,000.
D)$53,340.

Quizplus · Accepted Answer

The standard gross profit is calculated by adjusting the actual gross profit for all variances. Favorable variances increase profit, and unfavorable variances decrease it. The net effect of the variances is $2,500 F ($420 F + $600 F - $420 U + $1,000 F + $900 F). Subtracting this from the actual gross profit of $52,500 gives a standard gross profit of $50,000.

In Zero Company's Income Statement, They Report Actual Gross Profit