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 $2,884,000 of fixed manufacturing overhead for an estimated allocation base of 288,400 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 Total assets Liabilities and Equity Retained earnings Total liabilities and equity $ 740 190 310 8,900 $ 10, 140 $ 10, 140 $ 10, 140 The company's standard cost card for its only product is as follows: Inputs Direct materials Direct labor Fixed manufacturing overhead Total standard cost per unit (1) (2) Standard Standard Quantity Price or Hours or Rate 2 pounds $ 30.80 per pound 3.00 hours $ 14.00 per hour 3.00 hours $ 10.00 per hour Standard Cost (1) x (2) $ 61.60 42.00 30.00 $133.60

Answer 1

Part 1

Materials price variance = AQ*(AC-SC) = 232000*(29.90-30.80) = $208800 F

Materials quantity variance = SC*(AQ-SQ) = 30.80*(216000-(95400*2)) = $776160 U

Labor rate variance = AH*(AR-SR) = 245800*(16-14) = $491600 U

Labor efficiency variance = SR*(AH-SH) = 14*(245800-(95400*3)) = $565600 F

Budget variance = actual FOH – Budgeted FOH = 2742000-2884000 = 142000 F

Volume variance = Budgeted FOH – Applied FOH = 2884000-(95400*3*10) = 22000 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	740000	190000		310000	8900000								10140000
a.	(6936800)	7145600					208800
b.		(6652800)	5876640					(776160)
c.	(3932800)		4006800						(491600)	565600
d.	(1344000)		2862000		(1398000)						142000	(22000)
e.			(12745440)	12745440
f.	15708000												15708000
g.				(12344640)									(12344640)
h.	(2122000)												(2122000)
i.							(208800)	776160	491600	(565600)	(142000)	22000	(373360)
	2112400	682800	0	710800	7502000		0	0	0	0	0	0	11008000

95400*133.60 = 12745440

92400*170 =15708000

92400*133.60 = 12344640

Part 4

Income statement

Sales		15708000
Cost of goods sold (standard)	12344640
Total variance adjustments	373360
Cost of goods sold (actual)		12718000
Gross profit (actual)		2990000
Selling and administrative expenses		2122000
Net income		$868000