Required: 1. Compute all direct materials, direct labor, variable overhead, and

Question

Required:

1. Compute all direct materials, direct labor, variable overhead, and fixed overhead variances for the year.

2. Record transactions a through j for Phoenix Company.

3. Compute the ending balances for Phoenix Company’s balance sheet.

4. Prepare Phoenix Company’s income statement for the year.

Phoenix Company manufactures only one product and uses a standard cost system. The company uses a plantwide predetermined overhead rate that relies on direct labor-hours as the allocation base. The predetermined overhead rate is based on a cost formula that estimated $2,880,000 of fixed and variable manufacturing overhead for an estimated allocation base of 240,000 direct labor- hours. Phoenix does not maintain any beginning or ending work in process inventory. The company's beginning balance sheet is as follows: Phoenix Company Balance Shect Canh Raw materials inventory Finished goods inventory All other assets Total assets $ 1,200 300 540 12,000 $14,040 Liabilities and Equity Total 1iabilities and equity $14,040 The company's standard cost card for its only product is as follows: Standard Quantity Standard Price Inputs Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 2.00 hours 10.00 per hour 3 pounds 25.00 per pound 75.00 2.00 hours 16.00 per hour 2.00 hours 2.00 per hour 32.00 4.00 20.00 $131.00 Total standard cost per unit During the year Phoenix completed the following transactions: a. Purchased (with cash) 460,000 pounds of raw material at a price of $26.50 per pound. b. Added 430,000 pounds of raw material to work in process to produce 125,000 units. c. Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 265,000 hours at an average cost of $15.00 per hour to manufacture 125,000 units. d. Applied variable manufacturing overhead to work in process inventory using the variable portion of the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 125,000 units. Actual variable manufacturing overhead costs for the year (all paid in cash) were $480,000. e. Applied fixed manufacturing overhead to work in process inventory using the fixed portion of the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 125,000 units. Actual fixed manufacturing overhead costs for the year were $2,450,000. Of this total, $1,300,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,150,000 related to depreciation of equipment. f. Transferred 125,000 units from work in process to finished goods. g. Sold (for cash) 123,000 units to customers at a price of $175 per unit. h. Transferred the standard cost associated with the 123,000 units sold from finished goods to cost of goods sold. i. Paid $3,300,000 of selling and administrative expenses. j. Closed all standard cost variances to cost of goods sold.

Explanation / Answer

1. a)Direct Material Variance

purchased Raw materials = 460000 * 26.50/pound = 12190000

added raw materials = 430000 * 26.50/pound = 11395000

total purchased raw materials cost = 12190000 + 11395000 = 23585000

standard raw material cost = (460000 + 430000) * 25 = 22250000

direct material variance = 23585000 - 22250000 =1335000

b) Direct labour variance

standard laour cost for 2 hours = 32pounds

for 1 hour 16 pounds

standard laour cost for 265000 hours = 265000 * 16 = 4240000

actual laour cost = 265000 * 15 = 3975000

direct labour variance = 4240000 - 3975000 = 265000

c) Varaible overhead variance

actual variable manufacturing overheads = 480000

predermined overheads for produce 125000 units = 125000 * 4 = 500000

variable overhead variance = 500000 -480000 =20000

d) fixed overhead variance

actual fixed overheads - budgeted fixed overheads

Actual fixed overheads = (2450000 + 1300000 +1150000) = 4900000 *10 = 49000000

budgeted fixed overheads = budgetedb hours * standard rate/hour

2880000 *10 =28800000

fixed overhead variance = 49000000 - 28800000 =20200000

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