Lopez Company manufactures auto parts. The company installed a standard costing system to account for manufacturing costs.

Presented below are planned manufacturing data for 2018 and actual data for November 2018. The company applies overhead based upon machine hours. The denominator level of production is 4,000 units.

The standard cost card is as follows:

Direct materials 5 pounds @ $3.00 per pound

Direct labor 2 hours @ $9 per DLH

Variable overhead 6 machine hours @ $ 8 per machine hour

Fixed overhead 6 machine hours @ $15 per machine hour

During the year:

1. Actual production 4,400 units
2. Materials purchased 25,000 pounds at $3.50 per pound
3. Materials used 23,000 pounds
4. Actual direct labor cost 8,500 hours at $8.50 per DLH
5. Actual fixed overhead $373,000
6. Actual variable overhead $245,000
7. Actual machine hours used 28,400
8. All production was completed.
9. Three thousand units were sold for $250 each.
10. Selling expense was $3 per each unit sold and $100,000.

REQUIRED:

1. Journalize the above transactions.
2. Determine the eight production variances and indicated whether each is favorable or unfavorable.
3. Calculate the three-way and two-way variances.
4. Calculate operating income.