Arena 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 | pounds | $ | 5.50 | per pound | $ | 6.60 | |
Direct labor | 0.90 | hours | $ | 21.00 | per hour | 18.90 | ||
Fixed manufacturing overhead | 0.90 | hours | $ | 4.50 | per hour | 4.05 | ||
Total standard cost per unit | $ | 29.55 | ||||||
The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $81,000 and budgeted activity of 18,000 hours.
During the year, the company completed the following transactions:
The company calculated the following variances for the year:
Materials price variance | $ | 31,860 | F | ||||||
Materials quantity variance | $ | 550 | F | ||||||
Labor rate variance | $ | 9,524 | F | ||||||
Labor efficiency variance | $ | 8,400 | F | ||||||
Fixed manufacturing overhead budget variance | $ | 13,200 | F | ||||||
Fixed manufacturing overhead volume variance | $ | 27,945 | F | ||||||
To answer the following questions, you will need to record transactions a through i in the worksheet below. This worksheet is similar to the worksheets in your text except that it has been split into two parts to fit on the page. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.
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 | $1,200,000 | $29,700 | $0 | $70,920 | $505,400 | = | $0 | $0 | $0 | $0 | $0 | $0 | $1,806,020 | |
a. | = | |||||||||||||
b. | = | |||||||||||||
c. | = | |||||||||||||
d. | = | |||||||||||||
e. | = | |||||||||||||
f. | = | |||||||||||||
g. | = | |||||||||||||
h. | = | |||||||||||||
i. | = | |||||||||||||
12/31 | = | |||||||||||||
The ending balance in the PP&E (net) account will be closest to:
Multiple Choice
$505,400
$441,400
$396,455
$501,600
The ending balance in the PP&E (net) account will be closest to: Opening balance + Capital expenditure during the year - depreciation during the year = 505,400 + 0 - 64,000 = 441,400
Hence the correct answer is second option.
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