Question

Gates Corporation reported the following information concerning its direct materials.

Gates Corporation reported the following information concerning its direct materials. Direct materials purchased (actual) $ 690,000 Standard cost of materials purchased $ 740,700 Standard price times actual amount of materials used $ 835,000 Actual production 40,700 units Standard direct materials costs per unit produced $ 20 Assume that Gates Company had no beginning finished goods inventory and only produced one product. Gates sold 37,000 units during the period. Required: a. Assume Gates writes off all variances to Cost of Goods Sold. Prepare the entries Gates would make to record and close out the variances. b. Assume Gates prorates all variances to the appropriate accounts. Prepare the entries Gates would make to record and close out the variances.

Assume that Gates Company had no beginning finished goods inventory and only produced one product. Gates sold 37,000 units during the period.

Required:
a. Assume Gates writes off all variances to Cost of Goods Sold. Prepare the entries Gates would make to record and close out the variances.
b. Assume Gates prorates all variances to the appropriate accounts. Prepare the entries Gates would make to record and close out the variances.

Answer 1

Ans: Journal Entries

A). Assume Gates writes off all variances to Cost of Goods Sold

date	Account title and explanation	Debit($)	Credit($)
	Work in Process Inventory {40,700*20}	814,000
	Direct materials Efficiency Variance	21,000
	Raw Materials Inventory		835,000
	{to record the standard cost of materials used}
	Raw Materials Inventory	740,700
	Direct Materials Price Variance		50,700
	Accounts payable		690,000
	{ to record the cost of direct materials Purchased}
	Direct materials Price variance	50,700
	Direct Materials Efficiency Variance		21,000
	Cost Of Goods sold		29,700
	{ to record the closure of direct materials}

Working:

Particulars	Total Value	% of Total	Allocated
Cost of goods Sold{37,000*20}	740,000	91%	27,027
finished Goods Inventory{40,700-37,000)*20	74,000	9%	2,673
Total	814,000		29,700

Amount to be Allocated= 50,700-21,000

=> 29,700

2.  Assume Gates prorates all variances to the appropriate accounts

first and second entry would remain same

Date	Account title and explanation	Debit($)	Credit($)
	Direct materials Price Variance	50,700
	Cost of Goods Sold		27,027
	Direct materials Efficiency Variance		21,000
	Finished Goods Inventory		2,673
	{ to write off materials variances}