In Zero Company's income statement, they report actual gross profit of $52,500 and the following variances: $\begin{array}{lrr}
\text { Materials price } & 420 \mathrm{~F} \
\text { Materials quantity } & 600 \mathrm{~F} \
\text { Labor price } & 420 \mathrm{U} \
\text { Labor quantity } & 1,000 \mathrm{~F} \
\text { Overhead } & 900 \mathrm{~F}
\end{array}$ Zero would report gross profit at standard of

Question

Quizplus · Accepted Answer

The standard gross profit is calculated by adjusting the actual gross profit for all variances. Favorable variances (F) increase the standard profit, and unfavorable variances (U) decrease it. The total favorable variances are $420 + $600 + $1,000 + $900 = $2,920, and the unfavorable variance is $420. The net effect is $2,920 - $420 = $2,500 favorable. Therefore, the standard gross profit is $52,500 - $2,500 = $50,000.

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