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

Question

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

Quizplus · Accepted Answer

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

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