CASE ONE

The Beal Manufacturing Company uses a standard absorption costing job costing system. Manufacturing overhead is allocated to products on the basis of standard direct labor hours. At the beginning of 20xx, Beal adopted the following standards for its manufacturing costs:

Direct materials Direct labor Overhead

Variable Fixed

3 lb. @ $5 per lb. 5 hr @ $15 per hour

$6 per direct labor hour $8 per direct labor hour

The denominator level for total manufacturing overhead per month in 20xx is 40,000 direct labor hours. Beals expected level of sales is 6,000 units at $190 each. Beals flexible budget for January 20xx was based on this denominator level.

The records for January indicated the following:

Direct materials purchased Direct materials used Direct labor Total overhead

Actual production Units sold

REQUIRED:

25,000 lb at $5.20 per pound 23,100 lb 40,100 hours @ $14.60 per hour $600,000 (1/2 is variable; the remainder is fixed) 7,800 units

5,000 units at $200 per unit

1. Journalize the above transactions for January. 2. For January, determine all eight production variances. Also, determine the 3-way overhead

variances and the 2-way overhead variances. 3. As consultant for Beal Manufacturing, what issues would you address and what would you

recommend? 4. Prepare pro forma income statements (three, including an actual income statement (assuming

contribution margin format), flexible budget income statement, and a static budget income

statement. 5. Calculate the sales price and sales volume variances.