Question

Pioli Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold. There is no variable manufacturing overhead. The standard cost card for the company’s only product is as follows:

Inputs	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	1.2	kilos	$	3.00	per kilos	$	3.60
Direct labor	0.50	hours	$	25.00	per hour		12.50
Fixed manufacturing overhead	0.50	hours	$	6.00	per hour		3.00
Total standard cost per unit						$	19.10

The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $60,000 and budgeted activity of 10,000 hours.

During the year, the company completed the following transactions:

Purchased 13,300 kilos of raw material at a price of $2.40 per kilo.

Used 17,300 kilos of the raw material to produce 14,500 units of work in process.

Assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 6,550 hours at an average cost of $25.80 per hour.

Applied fixed overhead to the 14,500 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $143,350. Of this total, $59,890 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $83,460 related to depreciation of manufacturing equipment.

Transferred 14,500 units from work in process to finished goods.

Sold for cash 15,100 units to customers at a price of $52.40 per unit.

Completed and transferred the standard cost associated with the 15,100 units sold from finished goods to cost of goods sold.

Paid $44,070 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 and 3. Record the above transactions in the worksheet that appears below.

Req 1 to 3

Req 4

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

2 and 3. Record the above transactions in the worksheet that appears below. Because of the width of the worksheet, it is in two parts. In your text, these two parts would be joined side-by-side to make one very wide worksheet. The beginning balances have been provided for each of the accounts, including the Property, Plant, and Equipment (net) account which is abbreviated as PP&E (net) and Determine the ending balance (e.g., 12/31 balance) in each account. (Input all your answers as a positive value. Round your answers to the nearest whole dollar amount.)

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	Cash Raw Materials Work in Process Finished Goods PP&E (net) = Materials Price Variance Materials Quantity Variance Labor Rate Variance Labor Efficiency Variance FOH Budget Variance FOH Volume Variance Retained Earnings 1/1 $1,050,630 $45,370 $0 $54,300 $726,740 = $0 $0 $0 $0 $0 $0 a. = b. = c. = d. = e. = f. = g. = h. = i. = 12/31 =

4. Prepare an income statement for the year.

Answer 1

(1)

a. Material Rate Variance =

(Standard Rate per unit-Actual Rate per unit)*Actaul Units

=(3-2.4)*17300

10380

Favourable

b. Material Usage Variance =

(Standard units for actual production -Actual units used)*standard rate per Units

=((14500*1.2)-17300)*3

300

Favourable

c. Labour Rate Variance =

(Standard Rate per unit-Actual Rate per unit)*Actaul Labour Hours

=(25-25.8)*6550

-5240

Unfavourable

d. Labour Efficiency Variance =

(Standard hours for actual production -Actual Hours Worked)*standard rate per hour

=((14500*.5)-6550)*25

17500

Favourable

e. Fixed Overhead Expenditure Variance =

Budgeted Fixed Overhead - Actual Fixed Overhead

=60000-59890

110

Favourable

f. Fixed Overhead Volume Variance =

(Budgeted Hours - Standard Hours for Actual Output)* Standard Fixed Overhead rate per hour

=(10000-(14500*.5))*6

16500

Favourable

(2&3)

Cash

Raw Materials

Work in Process

Finished Goods

PP&E (net)

=

Materials Price Variance

Materials Quantity Variance

Labor Rate Variance

Labor Efficiency Variance

FOH Budget Variance

FOH Volume Variance

Retained Earnings

01-Jan

$1,050,630

$45,370

$0

$54,300

$726,740

=

$0

$0

$0

$0

$0

$0

a.Purchased 13,300 kilos of raw material at a price of $2.40 per kilo

$31920

=

10380

b.Used 17,300 kilos of the raw material to produce 14,500 units of work in process

-$51,900.00

$52,200.00

=

$300.00

c.worked 6,550 hours at an average cost of $25.80 per hour

$1,63,750.00

=

-$5,240.00

$17,500.00

d. Applied fixed overhead to the 14,500 units in work in process

$59,890.00

=

$110.00

$16,500.00

e.Depreciation

$83,460.00

=

f.Transferred 14,500 units from work in process to finished goods

-$2,76,950.00

$2,76,950.00

=

g.Sold for cash 15,100 units to customers at a price of $52.40 per unit.

$7,91,240.00

-$2,88,410.00

=

$5,01,320.00

h.Paid $44,070 of selling and administrative expenses

-$44,070.00

=

i.Closed all standard cost variances to cost of goods sold

$39,550.00

=

Dec-31

=

(4)

Income Statement of the Year

Sales

$7,91,240.00

Less: Cost of Sales at Standard Cost

$2,88,410.00

15100*19.1

Gross Profit

$5,02,830.00

Less: Depreciation

$83,460.00

Less: Selling & Administration Expenses

$44,070.00

$3,75,300.00

All Variances Favourable

$39,550.00

Net Profit

$4,14,850.00

Note-

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