Question

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 $2,887,200 of fixed and variable manufacturing overhead for an estimated allocation base of 240,600 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 Sheet
1/1/XX
(dollars in thousands)
Assets
Cash	$	1,500
Raw materials inventory		360
Finished goods inventory		660
All other assets		13,200
Total assets	$	15,720
Liabilities and Equity
Retained earnings	$	15,720
Total liabilities and equity	$	15,720

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	3 pounds	$	28.00	per pound	$	84.00
Direct labor	2.00 hours	$	16.00	per hour		32.00
Variable manufacturing overhead	2.00 hours	$	2.00	per hour		4.00
Fixed manufacturing overhead	2.00 hours	$	10.00	per hour		20.00
Total standard cost per unit					$	140.00

During the year Phoenix completed the following transactions:

1. Purchased (with cash) 463,000 pounds of raw material at a price of $29.50 per pound.
2. Added 432,400 pounds of raw material to work in process to produce 126,200 units.
3. Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 266,200 hours at an average cost of $15.00 per hour to manufacture 126,200 units.
4. 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 126,200 units. Actual variable manufacturing overhead costs for the year (all paid in cash) were $481,200.
5. 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 126,200 units. Actual fixed manufacturing overhead costs for the year were $2,453,000. Of this total, $1,306,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,147,000 related to depreciation of equipment.
6. Transferred 126,200 units from work in process to finished goods.
7. Sold (for cash) 123,600 units to customers at a price of $175 per unit.
8. Transferred the standard cost associated with the 123,600 units sold from finished goods to cost of goods sold.
9. Paid $1,900,000 of selling and administrative expenses.
10. Closed all standard cost variances to cost of goods sold.

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.

Answer 1

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