Chapter 9.B, Problem 5P

Transaction Analysis; Income Statement Preparation

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 $2,880,000 of fixed manufacturing overhead for an estimated allocation base of 288.000 direct labor-hours. Wallis does not maintain any beginning at ending work in process inventory. The company's beginning balance sheet is as follows:

The company's standard cost card for its only product is as follows:

During the year Wallis completed the following transactions:

a. Purchased (with cash) 230.000 pounds of raw material at a price of $29.50 per pound.

b. Added 215.000 pounds of raw material to work in process to produce 95.000 units.

c. Assigned direct labor costs to work in process, The direct laborers (who were paid in cash) worked 245.000 hours at an average cost of S16.00 per hour to manufacture 95.000 units.

d. Applied fixed overhead to work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 95.000 units. Actual fixed overhead costs for the year were $2,740,000. Of this total, $1,340,000 related to items such as insurance, utilities, and pase 463 salaried indirect laborers that were all paid in cash and $1,400,000 related to depreciation of equipment.

e. Transferred 95.000 units from work in process to finished goods.

f. Sold (for cash) 92,000 units to customers at a price of $170 per unit,

g. Transferred the standard cost associated with the 92,000 units sold from finished goods to cost of goods sold.

h. Paid $2,120,000 of selling and administrative expenses. i. 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. Using Exhibit 9B-3 as a guide, record transactions a through i for Wallis Company.
3. Compute the ending balances for Wallis Company's balance sheet, Using Exhibit 9B−5 as a guide, prepare Wallis Company's income statement for the year.