Chapter 9.B, Problem 6P

Transaction Analysis; Income Statement Preparation

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

Phoenix Company manufactures only one product and uses a standard cost system. The company uses a plantwide predetermined overhead rate that relies on direct labor-hours as the allocation base. The predetermined overhead rate is based on a cost formula that estimated $2,880,000 of fixed and variable manufacturing overhead for an estimated allocation base of 240,000 direct labor-hours. Phoenix does not maintain any beginning or ending work in process inventory. The company's beginning balance sheet is as follows:

During the year Phoenix completed the following transactions:

a. Purchased (with cash) 460.000 pounds of raw material at a price of $26.50 per pound.
b. Added 430.000 pounds of raw material to work in process to produce 125.000 units.
c. Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 265.000
hours at an average cost of $1 5.00 per hour to manufacture 125.000 units.
d. e portion of the
predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 125.000
units. Actual variable manufacturing overhead costs for the year (all paid in cash) were $480,000.
e. Applied fixed manufacturing overhead to work in process inventory using the fixed portion of the predetermined
overhead rate multiplied by the number of direct labor-hours allowed to manufacture 125,000 units. Actual fixed
manufacturing overhead costs for the year were $2,450,000. Of this total, $1,300,000 related to items such as
insurance, utilities, and salaried indirect laborers that were all paid in cash and $1, 150,000 related to depreciation
of equipment.
f Transferred 125.000 units from work in process to finished goods.
g. Sold (for cash) 123,000 units to customers at a price of $1 75 per unit.
h. Transferred the standard cost associated with the 123.000 units sold from finished goods to cost of goods sold.
i. Paid $3,300,000 of selling and administrative expenses.
j. Closed all standard cost variances to cost of goods sold.
Required:

1. Compute all direct materials, direct labor, variable overhead, and fixed overhead variances for the year.

Using Exhibit 9B−3 as a guide, record transactions a through j for Phoenix Company.

Compute the ending balances for Phoenix Company's balance sheet.

Using Exhibit 9B-5 as a guide, prepare Phoenix Company's income statement for the year.