The Beal Manufacturing Company uses a standard absorption costing job costing system. Manufacturing overhead is allocated to

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Question:

The Beal Manufacturing Company uses a standard absorption costing job costing system. Manufacturing overhead is allocated to products on the basis of standard direct labor hours. At the beginning of 20xx, Beal adopted the following standards for its manufacturing costs:

Direct materials 3 lb. @ $5 per lb.

Direct labor 5 hr @ $15 per hour

Overhead:

Variable $6 per direct labor hour

Fixed $8 per direct labor hour

The denominator level for total manufacturing overhead per month in 20xx is 40,000 direct labor hours.

Beal’s expected level of sales is 6,000 units at $190 each. Beal’s flexible budget for March 20xx was based on this denominator level.

The records for January indicated the following:

Direct materials purchased 25,000 lb at $5.20 per pound

Direct materials used 23,100 lb

Direct labor 40,100 hours @ $14.60 per hour

Total overhead $600,000 (1/2 is variable; the remainder is fixed)

Actual production 7,800 units

Units sold 5,000 units at $200 per unit

Variances:

Materials price variance = 5000 Unfavorable

Materials usage variance = 1500 Favorable

DL rate variance = 16040 F

DL efficiency variance = 16500 U

Variable overhead spending variance = 59400 U

Variable overhead efficiency variance = 6600 U

Fixed overhead budget variance = 20000 F

Fixed volume variance 8000 U

REQUIRED:

1. Journalize the above transactions for March.

2. For January, determine the 3-way overhead variances and the 2-way overhead variances.

3. Prepare pro forma income statements (three, including an actual income statement (assuming contribution margin format), flexible budget income statement, and a static budget income statement.