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 $2,899,000 of fixed manufacturing overhead for an estimated allocation base of 289,900 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 850 Raw materials inventory Finished goods inventory Property, plant, and equipment, net 300 420 10,000 $11,570 Total assets Liabilities and Equity Retained earnings $11,570 $11,570 Total liabilities and equity The company's standard cost card for its only product is as follows: (1) Standard (2) Standard Price Standard Quantity or Hours 2 pounds Cost - (1) x (2) 66.00 45.00 Inputs Direct materials or Rate $ 33.00 per pound hour Direct labor Fixed manufacturing overhead $ 15.00 p 3.00 hours $ 10.00 per hour 3.00 hours 30.00 $141.00 Total standard cost per unit

Answer 1

Part 1

Materials price variance = AQ*(AC-SC) = 237500*(31-33) = $475000 F

Materials quantity variance = SC*(AQ-SQ) = 33*(218750-(96500*2)) = $849750 U

Labor rate variance = AH*(AR-SR) = 248000*(16-15) = $248000 U

Labor efficiency variance = SR*(AH-SH) = 15*(248000-(96500*3)) = $622500 F

Budget variance = actual FOH – Budgeted FOH = 2747500-2899000 = 151500 F

Volume variance = Budgeted FOH – Applied FOH = 2899000-(96500*3*10) = 4000 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	850000	300000		420000	10000000								11570000
a.	(7362500)	7837500					475000
b.		(7218750)	6369000					(849750)
c.	(3968000)		4342500						(248000)	622500
d.	(1355000)		2895000		(1392500)						151500	(4000)
e.			(13606500)	13606500
f.	15895000												15895000
g.				(13183500)									(13183500)
h.	(2127500)												(2127500)
i.							(475000)	849750	248000	(6225000)	(151500)	4000	147250
	1932000	918750	0	843000	8607500		0	0	0	0	0		731250

Part 4

Income statement

Sales		15895000
Cost of goods sold (standard)	13183500
Total variance adjustments	(147250)
Cost of goods sold (actual)		13036250
Gross profit (actual)		2858750
Selling and administrative expenses		2127500
Net income		$731250