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 $2,889,000 of fixed manufacturing overhead for an estimated allocation base of 288,900 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 Raw materials inventory Finished goods inventory Property, plant, and equipment, net 790 240 360 9,400 $10,790 Total assets Liabilities and Equity Retained earnings $10,790 Total liabilities and equity $10,790 The company's standard cost card for its only product is as follows: (1) Standard Quantity (2) Standard Price Standard Cost Inputs Direct materials Direct labor or Hours or Rate (1) x (2) S 63.60 2 pounds 31.80 per pound $15.00 per hour $ 10.00 per hour 3.00 hours 45,00 Fixed manufacturing overhead 3.00 hours 30.00 $138.60 Total standard cost per unit

Answer 1

Part 1

Materials price variance = AQ*(AC-SC) = 234500*(30.40-31.80) = $328300 F

Materials quantity variance = SC*(AQ-SQ) = 31.80*(217250-(95900*2)) = $809310 U

Labor rate variance = AH*(AR-SR) = 246800*(16-15) = $246800 U

Labor efficiency variance = SR*(AH-SH) = 15*(246800-(95900*3)) = $613500 F

Budget variance = actual FOH – Budgeted FOH = 2744500-2889000 = 144500 F

Volume variance = Budgeted FOH – Applied FOH = 2889000-(95900*3*10) = 12000 U

Part 2 & 3

Wallis company Transaction analysis For the year ended 12/31/XX (dollars in thousands)
	Cash	Raw materials	Work-in-progress	Finished goods	PP&E (net)	=	Material price variance	Material quantity variance	Labor rate variance	Labor efficiency variance	Fixed overhead budget variance	Fixed overhead volume variance	Retainer earnings
1/1	790000	240000		360000	9400000								10790000
a.	(7128800)	7457100					328300
b.		(6908550)	6099240					(809310)
c.	(3948800)		4315500						(246800)	613500
d.	(1349000)		2877000		(1395500)						144500	(12000)
e.			(13291740)	13291740
f.	15793000												15793000
g.				(12875940)									(12875940)
h.	(2124500)												(2124500)
i.							(328300	809310	246800	(613500)	(144500)	12000	18190
	2031900	788550	0	775800	8004500		0	0	0	0	0	0	11600750

95900*138.60 = 13291740

92900*170 =15793000

92900*138.60 = 12875940

Part 4

Income statement

Sales		15793000
Cost of goods sold (standard)	12875940
Total variance adjustments	(18190)
Cost of goods sold (actual)		12857750
Gross profit (actual)		2935250
Selling and administrative expenses		2124500
Net income		$810750