Jaiying Li operates a successful machining shop. Jaiying recently submitted the following bid for a job:

Jaiying's customer negotiated the bid down to $24,000. After completing the job, Jaiying calculated that she spent $7,200 on materials and incurred 550 labor hours at a cost of $8,000. Jaiying therefore believes that she made a profit of $24,000 - $7,200 materials cost - $8,000 labor cost - $8,000 overhead cost - $800 on the job.
Required:
a. Do you agree with Jaiying's assessment regarding the amount of profit she made from the job?
b. Perform a variance analysis that shows the various reasons as to why actual profit differed from budgeted profit.
c. Why does the variance analysis for part (b) include a flexible budget?

Transcribed Image Text:

Direct materials Labor Fixed overhead Total cost Profit at 10% Bid $7,000 500 hoursS15/hour 7,500 7,500 $22,500 2,250 $24,750 100% of, labor cost