Case 19-3: Brisson Company Approach This problem takes the student through a complete cycle of transactions in a standard cost system in a simple setting. It shows how such a system works, including the development of variances, and ties cost accounting to the accounting cycle the student learned in Part 1 of the book. (Brisson’s system is the same as the one depicted in Illustration 19-2. ) This seems to be a valuable exercise, especially in helping to minimize the omnipresent problems students have with production cost variance analysis in the next chapter.
If not assigned for class, this makes a good exam case. (For ease in grading, I suggest you prepare forms with all needed T accounts preprinted on them. ) Question 1 Materials Inventory| | Work in Process Inventory| Bal. | 50,250| (4)| 118,810| | Bal. | 75,600| (9)| 267,684| (2)| 104,980| | 36,420| | (4)| 116,696| | | Bal. | 36,420| | | | (5a,8)| 79,200| | | | | | | | (8)| 99,000| | 102,812| Finished Goods Inventory| | Bal. | 102,812| | | Bal. | 155,400| (10b)| 232,602| | | | | | (9)| 267,684| | 190,482| | | | | | Bal. | 190,482| | | | | | | | | | | | | | | | |
Accounts Payable| | All Other Assets| (3a)| 102,300| Bal. | 104,700| | Bal. | 325,500| (3a)| 102,300| | | (2)| 103,535| | (3b)| 192,000| (3b)| 192,000| | 143,435| (6)| 37,500| | (10a)| 375,150| (5b)| 116,700| | | Bal. | 143,435| | | | (6)| 18,300| | | | | | | | (7)| 78,750| All Other Liabilities| | | | | 384,600| | | Bal. | 47,250| | Bal. | 384,600| | | | | | | | | | | | Overhead| | Wages Payable| (5a)| 40,500| (8)| 99,000| | (5b)| 116,700| Bal. | 6,150| (6)| 55,800| | | | | 2,250| (5a)| 112,800| (11)| 2,700| | | | | | Bal. | 2,250| | | | | | | | | | | | | | | | | | |
Overhead Variance| | Shareholders’ Equity| (14)| 2,700| (11)| 2,700| | | | Bal. | 448,650| | | | | | | 521,379| (19)| 72,729| | | | | | | | Bal. | 521,379| | | | | | | | | | Labor Variance| | Material Price Variance| (16)| 6,900| (5a,8)| 6,900| | (15)| 1,445| (2)| 1,445| | | | | | | | | | | | | | | | | | | Sales| | Material Usage Variance| (12)| 375,150| (10a)| 375,150| | (4)| 2,114| (17)| 2,114| | | | | | | | | | | | | | | | | | | Selling and Admin. Expense| | Income Summary| (7)| 78,750| (18)| 78,750| | (13)| 232,602| (12)| 375,150| | | | | | (17)| 2,114| (14)| 2,700| | | | | (18)| 78,750| (15)| 1,445| Cost of Sales| | (19)| 72,729| (16)| 6,900| (10b)| 232,602| (13)| 232,602| | | | | | | | | | | | | | | Notes on entries (numbered to correspond to the case transactions): (2) 2,500 @ $29. 80 + 1,000 @ $30. 48 = $104,980 @ std. $104,980 - $103,535 = $1,445 credit (favorable) price variance. Favorable price variances often arise in the first half of the year; the standard is set to represent the annual average, and with inflation, prices will tend to be below this average for the first 6 months and above it in the latter half f the year. (3b)The debit reflects an increase in Cash; the credit represents the decrease in Accounts Receivable. (3) 3,200 @ $29. 80 + 700 @ $30. 48 = $116,696 for original issues; plus extra (replacement) issues as follows: 100 @ $12. 37 + 20 @ $11. 25 + 45 @ $10. 80 + 20 @ $6. 63 + 4 @ $8. 43 = $2,114 (an (4) unfavorable usage variance); giving total issues of $118,810. (Note: Some students may claim that the $2,114 in extra materials issues were to replace materials that were defective, as opposed to replacing good items that were spoiled in the production places.
Such students may treat this $2,114 as an overhead cost; if so, they will have $0 material usage variance and $586 favorable overhead variance. ) (5a)This entry stumps many students, at least temporarily. Some will cleverly set up a labor clearing account analogous to the overhead clearing account, and then charge the standard labor to this account at entry (8) the balance in this labor clearing account will be $6,900 dr. , which is closed to Labor Variance. Other students will do what I’ve done here—read ahead to entry (8), and deduce the labor variance as part of the entry. 9)3,000 @ $70. 30 + 800 @ $70. 98 = $267,684 (10b)2,400 @ $70. 30 + 900 @ $70. 98 = $232,602 cost of sales (11)This closes the overhead clearing account. (12)-(19) These entries close the temporary accounts and income summary. Question 2 BRISSON COMPANY Income Statement Month of April| Sales revenue| $375,150| Cost of sales @ standard| 232,602| Standard gross margin| 142,548| Production cost variances*| 8,931| Actual gross margin| 151,479| Selling and administrative expense| 78,750| Income| $ 72,729| *Production cost variances:| | Martial price| $1,445F| Material usage| 2,114U| Labor| 6,900F| Overhead| 2,700F| | $8,931F| Question 3 BRISSON COMPANY Balance Sheet As of April 30| Assets| | Liabilities and Shareholders’ Equity| Materials inventory| $ 36,420| | Accounts payable| $143,435| Work in process inventory| 102,812| | Wages payable| 2,250| Finished goods inventory| 190,482| | All other liabilities| 47,250| All other asses| 384,600| | Shareholders’ equity| 521,379| | $714,314| | | $714,314|
