Brisson Company Case Study

Case 19-3 Brisson Company Approach This problem takes the student through a complete cycle of proceedings in a pattern exist system in a simple setting. It shows how such a system works, including the development of variances, and ties cost explanation to the accounting cycle the student learned in Part 1 of the book. (Brissons 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 collectable 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 sum-up (7) 78,750 (18) 78,750 (13) 232,602 (12) 375,150 (17) 2,114 (14) 2,700 (18) 78,750 (15) 1,445 salute 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 get-go 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 unnecessary (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 radical issues of $118,810. (Note Some students may claim that the $2,114 in extra materials issues were to replace materials that were defectiv e, as opposed to replacing good items that were spoiled in the production places.Such students may allot 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 Ive done hereread 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 232,60 2 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 ancestry $ 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