Wallis Company manufactures only one product and uses a standard cost system. Th
ID: 2595631 • Letter: W
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 as the allocation base. All of the company's manufacturing overhead costs are fixed—it does not incur any variable manufacturing overhead costs. The predetermined overhead rate is based on a cost formula that estimated $2,883,000 of fixed manufacturing overhead for an estimated allocation base of 288,300 direct labor-hours. Wallis does not maintain any beginning or ending work in process inventory.
The company’s beginning balance sheet is as follows:
The company’s standard cost card for its only product is as follows:
During the year Wallis completed the following transactions:
Purchased (with cash) 231,500 pounds of raw material at a price of $29.80 per pound.
Added 215,750 pounds of raw material to work in process to produce 95,300 units.
Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 245,600 hours at an average cost of $16.00 per hour to manufacture 95,300 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 95,300 units. Actual fixed overhead costs for the year were $2,741,500. Of this total, $1,343,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,398,500 related to depreciation of equipment.
Transferred 95,300 units from work in process to finished goods.
Sold (for cash) 92,300 units to customers at a price of $170 per unit.
Transferred the standard cost associated with the 92,300 units sold from finished goods to cost of goods sold.
Paid $2,121,500 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 Company’s balance sheet.
4. Prepare Wallis Company’s income statement for the year.
Wallis Company Balance Sheet 1/1/XX (dollars in thousands) Assets Cash $ 730 Raw materials inventory 180 Finished goods inventory 300 Property, plant, and equipment, net 8,800 Total assets $ 10,010 Liabilities and Equity Retained earnings $ 10,010 Total liabilities and equity $ 10,010Explanation / Answer
1. Direct Materials Rate Variance = $ ( 30.60 - 29.80) x 231,500 = $ 185,200 Favorable.
Direct Materials Quantity Variance = ( 95,300 x 2 - 215,750) x $ 30.60 = $ 769,590 Unfavorable
Direct Labor Rate Variance = $ ( 15.00 - 16.00) x 245,600 = $ 245,600 Unfavorable
Direct Labor Efficiency Variance = ( 95,300 x 3 - 245,600) x $ 15.00 = $ 604,500 Favorable.
Fixed Manufacturing Overhead Variance = 245,600 x 10.00 - 2,741,500 = $ 285,500 Unfavorable.
2. In the books of Wallis Company:
4. Wallis Company
Income Statement
For the period ended December 31, XX
Transaction / Event Account Titles Debit Credit $ $ a. Raw Materials Inventory 6,898,700 Cash 6,898,700 b. Work in Process Inventory 6,429,350 Raw Materials Inventory 6,429,350 c. Work in Process Inventory 3,929,600 Cash 3,929,600 d. Work in Process Inventory 2,456,000 Manufacturing Overhead 2,456,000 e. Manufacturing Overhead 2,741,500 Accumulated Depreciation: Equipment 1,398,500 Cash 1,343,000 f. Finished Goods Inventory 12,814,950 Work in Process Inventory 12,814,950 g. Cash 15,691,000 Sales 15,691,000 Cost of Goods Sold 12,411,541 Finished Goods Inventory 12,411,541 h. Selling and Administrative Expense 2,121,500 Cash 2,121,500 i. Direct Materials Rate Variance 185,200 Direct Labor Efficiency Variance 604,500 Cost of Goods Sold 510,990 Direct Materials Quantity Variance 769,590 Direct Labor Rate Variance 245,600 Manufacturing Overhead 285,500Related Questions
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