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 $2,892,000 of fixed manufacturing overhead for an estimated allocation base of 289,200 direct labor-hours. Wallis does not maintain any beginning or ending work in process inventory.

The company’s beginning balance sheet is as follows:

Wallis Company
Balance Sheet
1/1/XX
(dollars in thousands)
Assets
Cash	$	820
Raw materials inventory		270
Finished goods inventory		390
Property, plant, and equipment, net		9,700
Total assets	$	11,180
Liabilities and Equity
Retained earnings	$	11,180
Total liabilities and equity	$	11,180

The company’s 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	$	32.40	per pound	$	64.80
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					$	139.80

During the year Wallis completed the following transactions:

Purchased (with cash) 236,000 pounds of raw material at a price of $30.70 per pound.

Added 218,000 pounds of raw material to work in process to produce 96,200 units.

Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 247,400 hours at an average cost of $16.00 per hour to manufacture 96,200 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 96,200 units. Actual fixed overhead costs for the year were $2,746,000. Of this total, $1,352,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,394,000 related to depreciation of equipment.

Transferred 96,200 units from work in process to finished goods.

Sold (for cash) 93,200 units to customers at a price of $170 per unit.

Transferred the standard cost associated with the 93,200 units sold from finished goods to cost of goods sold.

Paid $2,126,000 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 Company’s balance sheet.

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

Answer 1