Question
Wallis Company manufactures only one product and uses a standard cost system. The company uses a predetermined plantwide overhead rate that relies on direct labor-hours
Wallis Company manufactures only one product and uses a standard cost system. The company uses a predetermined plantwide overhead rate that relies on direct labor-hours as the allocation base. All of the company's manufacturing overhead costs are fixedit does not incur any variable manufacturing overhead costs. The predetermined overhead rate is based on a cost formula that estimated $2,880,000 of fixed manufacturing overhead for an estimated allocation base of 288,000 direct labor-hours. Wallis does not maintain any beginning or ending work in process inventory.
The companys beginning balance sheet is as follows:
Wallis Company | |
---|---|
Balance Sheet | |
1/1/XX | |
(dollars in thousands) | |
Assets | |
Cash | $ 700 |
Raw materials inventory | 150 |
Finished goods inventory | 270 |
Property, plant, and equipment, net | 8,500 |
Total assets | $ 9,620 |
Liabilities and Equity | |
Retained earnings | $ 9,620 |
Total liabilities and equity | $ 9,620 |
The companys standard cost card for its only product is as follows:
Inputs | (1) Standard Quantity or Hours | (2) Standard Price or Rate | Standard Cost (1) (2) | ||
---|---|---|---|---|---|
Direct materials | 2 | pounds | $ 30.00 | per pound | $ 60.00 |
Direct labor | 3.00 | hours | $ 15.00 | per hour | 45.00 |
Fixed manufacturing overhead | 3.00 | hours | $ 10.00 | per hour | 30.00 |
Total standard cost per unit | $ 135.00 |
During the year Wallis completed the following transactions:
- Purchased (with cash) 230,000 pounds of raw material at a price of $29.50 per pound.
- Added 215,000 pounds of raw material to work in process to produce 95,000 units.
- Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 245,000 hours at an average cost of $16.00 per hour to manufacture 95,000 units.
- Applied fixed overhead to work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 95,000 units. Actual fixed overhead costs for the year were $2,740,000. Of this total, $1,340,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,400,000 related to depreciation of equipment.
- Transferred 95,000 units from work in process to finished goods.
- Sold (for cash) 92,000 units to customers at a price of $170 per unit.
- Transferred the standard cost associated with the 92,000 units sold from finished goods to cost of goods sold.
- Paid $2,120,000 of selling and administrative expenses.
- Closed all standard cost variances to cost of goods sold.
Required:
1. Compute all direct materials, direct labor, and fixed overhead variances for the year.
2. Record transactions a through i for Wallis Company.
3. Compute the ending balances for Wallis Companys balance sheet.
4. Prepare Wallis Companys income statement for the year.
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