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 $ 740 Raw materials inventory 190 Finished goods inventory 310 Property, plant, and equipment, net 8,900 Total assets $ 10,140 Liabilities and Equity Retained earnings $ 10,140 Total liabilities and equity $ 10,140 The company’s standard cost card for its only product is as follows: Inputs (1) Standard Quantity or Hours (2) Standard Price or Rate Standard Cost (1) × (2) Direct materials 2 pounds $ 30.80 per pound $ 61.60 Direct labor 3.00 hours $ 14.00 per hour 42.00 Fixed manufacturing overhead 3.00 hours $ 10.00 per hour 30.00 Total standard cost per unit $ 133.60 During the year Wallis completed the following transactions: Purchased (with cash) 232,000 pounds of raw material at a price of $29.90 per pound. Added 216,000 pounds of raw material to work in process to produce 95,400 units. Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 245,800 hours at an average cost of $16.00 per hour to manufacture 95,400 units. Applied fixed overhead to work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 95,400 units. Actual fixed overhead costs for the year were $2,742,000. Of this total, $1,344,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,398,000 related to depreciation of equipment. Transferred 95,400 units from work in process to finished goods. Sold (for cash) 92,400 units to customers at a price of $170 per unit. Transferred the standard cost associated with the 92,400 units sold from finished goods to cost of goods sold. Paid $2,122,000 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. Record transactions a through i for Wallis Company. 3. Compute the ending balances for Wallis Company’s balance sheet. 4. Prepare Wallis Company’s income statement for the year.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Wallis Company manufactures only one product and uses a
The company’s beginning
| Wallis Company | ||
| Balance Sheet | ||
| 1/1/XX | ||
| (dollars in thousands) | ||
| Assets | ||
| Cash | $ | 740 |
| Raw materials inventory | 190 | |
| Finished goods inventory | 310 | |
| Property, plant, and equipment, net | 8,900 | |
| Total assets | $ | 10,140 |
| Liabilities and Equity | ||
| $ | 10,140 | |
| Total liabilities and equity | $ | 10,140 |
The company’s standard cost card for its only product is as follows:
| Inputs | (1) Standard Quantity or Hours |
(2) Standard Price or Rate |
Standard Cost (1) × (2) |
||||
| Direct materials | 2 pounds | $ | 30.80 | per pound | $ | 61.60 | |
| Direct labor | 3.00 hours | $ | 14.00 | per hour | 42.00 | ||
| Fixed manufacturing overhead | 3.00 hours | $ | 10.00 | per hour | 30.00 | ||
| Total standard cost per unit | $ | 133.60 | |||||
During the year Wallis completed the following transactions:
- Purchased (with cash) 232,000 pounds of raw material at a price of $29.90 per pound.
- Added 216,000 pounds of raw material to work in process to produce 95,400 units.
- Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 245,800 hours at an average cost of $16.00 per hour to manufacture 95,400 units.
- Applied fixed overhead to work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 95,400 units. Actual fixed overhead costs for the year were $2,742,000. Of this total, $1,344,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,398,000 related to
depreciation of equipment. - Transferred 95,400 units from work in process to finished goods.
- Sold (for cash) 92,400 units to customers at a price of $170 per unit.
- Transferred the standard cost associated with the 92,400 units sold from finished goods to cost of goods sold.
- Paid $2,122,000 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. Record transactions a through i for Wallis Company.
3. Compute the ending balances for Wallis Company’s balance sheet.
4. Prepare Wallis Company’s income statement for the year.
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