Question

Closing the Balances in The Variance Accounts at the End of the Year

Yohan Company has the following balances in its direct materials and direct labor variance accounts at year-end:

	Debit	Credit
Direct Materials Price Variance	$13,950
Direct Materials Usage Variance		$1,240
Direct Labor Rate Variance		850
Direct Labor Efficiency Variance	$13,000

Unadjusted Cost of Goods Sold equals $1,530,000, unadjusted Work in Process equals $336,000, and unadjusted Finished Goods equals $200,000.

Required:

1. Assume that the ending balances in the variance accounts are immaterial and prepare the journal entries to close them to Cost of Goods Sold. Note: Close the variances with a debit balance first. If an amount box does not require an entry, leave it blank or enter "0".

	Close variances with debit balance
	Close variances with credit balance

What is the adjusted balance in Cost of Goods Sold after closing out the variances?

$

2. What if any ending balance in a variance account that exceeds $12,000 is considered material? (a) Close the immaterial variance accounts to Cost of Goods Sold. (b) Prorate the largest of the labor variances among Cost of Goods Sold, Work in Process, and Finished Goods on the basis of prime costs in these accounts. (c) Prorate the largest of the material variances among Cost of Goods Sold, Work in Process, and Finished Goods on the basis of prime costs in these accounts. The prime cost in Cost of Goods Sold is $1,060,000, the prime cost in Work in Process is $161,800, and the prime cost in Finished Goods is $130,000. If an amount box does not require an entry, leave it blank or enter "0".

Note: Round all interim calculations to three decimal places, and round your final answers to the nearest dollar. Adjust credit entry for rounding to ensure debits equal credits in journal entry.

(a)
(b)
(c)

What are the adjusted balances in Work in Process, Finished Goods, and Cost of Goods Sold after closing out all variances?

	Adjusted balance
Work in Process	$
Finished Goods	$
Cost of Goods Sold	$

Check My Work1 more Check My Work uses remaining.

Answer 1

Req 1.
Journal entries:
S.no.	Accounts title and explanations				Debit$	Credit $
a	Cost of goods sold Dr.				13950
	Material price variance				13000
	Labouor efficiency variance					26950
b.	Material usage Variance Dr.				1240
	Labour rate variance Dr.				850
	Cost of goods sold					2090
Balance of Cost of goods sold:
Unadjusted balance of COGS				1530000
Add: Material price variance				13,950
Add: Labour efficiency variance				13000
Less: Material usage variance				-1240
Less: Labour rate variance				-850
Adjusted Cost of goods sold				1,554,860
Req 2.
Allocation of Material price and labour efficiency variance:
	Prime cost	% of Total	MPV	LEV	Allocated MPV		Allocated LEV
COGS	1,060,000	78.41%	13950	13000	10938.75		10193.8
Wip	161800	11.97%	13950	13000	1669.707		1556
FG	130000	9.62%	13950	13000	1341.545		1250.18
Total	1351800	100.00%	13950	13000	13950		13000
Journal entries:
S.no.	Accounts title and explanations				Debit$	Credit $
a	Material usage Variance Dr.				1240
	Labour rate variance Dr.				850
	Cost of goods sold					2090
b.	Cost of goods sold Dr.				10939
	Work in process inventory Ddr.				1670
	Finished Goods inventory Dr.				1341
	Material price variance					13950
c.	Cost of goods sold Dr.				10194
	Work in process inventory Ddr.				1556
	Finished Goods inventory Dr.				1250
	Labur efficiency variance					13000
Adjusted balance:
Work in process = 336000+ 1670+1556 = 339226
Finished goods =200000+1341+1250 = 202591
COGS = 1530000+10939+10194-2090 = 1549043