Phann Corporation Manufactures One Product

question 109

Multiple Choice

Phann 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:
The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $90,000 and budgeted activity of 7,500 hours.
During the year, the company completed the following transactions:
a. Purchased 59,000 kilos of raw material at a price of $9.20 per kilo.
b. Used 51,340 kilos of the raw material to produce 18,300 units of work in process.
c. Assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 8,850 hours at an average cost of $23.70 per hour.
d. Applied fixed overhead to the 18,300 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $79,400. Of this total, $22,400 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $57,000 related to depreciation of manufacturing equipment.
e. Completed and transferred 18,300 units from work in process to finished goods.
Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.

-When applying fixed manufacturing overhead to production in transaction (d) above,the Work in Process inventory account will increase (decrease) by:

• A) ($109,800)
• B) $22,400
• C) $109,800
• D) ($22,400)

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