Arena Corporation Manufactures One Product

question 122

Multiple Choice

Arena 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 $81,000 and budgeted activity of 18,000 hours.
During the year, the company completed the following transactions:
a. Purchased 35,400 pounds of raw material at a price of $4.60 per pound.
b. Used 32,180 pounds of the raw material to produce 26,900 units of work in process.
c. Assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 23,810 hours at an average cost of $20.60 per hour.
d. Applied fixed overhead to the 26,900 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 $67,800. Of this total, $3,800 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $64,000 related to depreciation of manufacturing equipment.
e. Completed and transferred 26,900 units from work in process to finished goods.
f. Sold (for cash) 27,100 units to customers at a price of $36.60 per unit.
g. Transferred the standard cost associated with the 27,100 units sold from finished goods to cost of goods sold.
h. Paid $149,000 of selling and administrative expenses.
i. Closed all standard cost variances to cost of goods sold.
The company calculated the following variances for the year:
To answer the following questions, you will need to record transactions a through i in the worksheet below. This worksheet is similar to the worksheets in your text except that it has been split into two parts to fit on the page. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.

-The ending balance in the Retained Earnings account at the end of the year is closest to:

• A) $1,897,499
• B) $1,939,554
• C) $1,848,075
• D) $1,672,486

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Definitions:

Variable Costing

An accounting method in which costs that vary directly with production volume (such as materials and labor) are included in product costs, whereas fixed costs are not.

Absorption Costing

A system of accounting that entails adding all expenses incurred in production, including direct materials, direct labor, and both variable and fixed overheads, into the cost calculation of a product.

Product Cost

The total cost of manufacturing or purchasing a product, including raw materials, labor, and overhead expenses.

Per Unit

A term referring to expressing or measuring amounts for each single item or instance.