Forsyth Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. During the year, the company produced and sold 10,000 units at a price of $135 per unit. Its standard cost per unit produced is $105 and its selling and administrative expenses totaled $235,000. Forsyth does not have any variable manufacturing overhead costs and it recorded the following variances during the year:

Materials price variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,500 F

Materials quantity variance . . . . . . . . . . . . . . . . . . . . . . . . $10,200 U

Labor rate variance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,500 U

Labor efficiency variance . . . . . . . . . . . . . . . . . . . . . . . . . . $4,400 F

Fixed overhead budget variance . . . . . . . . . . . . . . . . . . . . . $2,500 F

Fixed overhead volume variance . . . . . . . . . . . . . . . . . . . . $12,000 F

Required:

1. When Forsyth closes its standard cost variances, the cost of goods sold will increase (decrease) by how much?

2. Using Exhibit 10B-5 as a guide, prepare an income statement for the year.

Exhibit 10 B - 5: Dylan Corporation: Income Statement

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Dylan Corporation Income Statement For Year Ended 12/31/Xx (dollars in thousands) 2 4. 6 Sales 7 Cost of goods sold at standard 8 Total variance adjustments 9 Cost of goods sold 10 Gross margin 11 Selling and administrative expenses 12 Net operating income 13 4 Exhibi 10B-4 Exhibit 10B-5 s 5,270 S 4,335 36 4,371 899 450 S 449