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	$14,250
Direct Materials Usage Variance		$1,180
Direct Labor Rate Variance		820
Direct Labor Efficiency Variance	$12,460

Unadjusted Cost of Goods Sold equals $1,540,000, unadjusted Work in Process equals $336,000, and unadjusted Finished Goods equals $260,000.

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 $9,000 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 $1,050,000, the prime cost in Work in Process is $165,200, and the prime cost in Finished Goods is $136,000. 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	$

Answer 1

1)

Date	Account title	Debit	credit
a	Cost of goods sold	26710
	Direct Materials Price Variance		14250
	Direct Labor Efficiency Variance		12460
	[To close variances with debit balance ]
b	Direct Materials Usage Variance	1180
	Direct Labor Rate Variance	820
	Cost of goods sold		2000
	[To close variances with Credit balance ]

Adjusted cost of goods sold =Unadjusted balance of cost of goods sold +Closing variance with debit vaiance -closing variablce with credit variance

            = 1,540,000 + 26710 -2000

           = $ 1,564,710

2)

Calculation of weights based on prime cost:

	Prime cost	weights based on prime cost
cost of goods sold	1050000	77.709%
work in process	165200	12.226%
Finished goods	136000	10.065%
Total	1351200

Date	Account title	Debit	credit
a	Direct Materials Usage Variance	1180
	Direct Labor Rate Variance	820
	Cost of goods sold		2000
	[To close variance with less than 9000 ]
b	work in process (14250*12.226%)	1742
	Finished goods (14250*10.065%)	1434
	Cost of goods sold (14250*77.709%)	11074
	Direct Materials Price Variance		14250
c	work in process (12460*12.226%)	1523
	Finished goods (12460*10.065%)	1254
	Cost of goods sold (12460*77.709%)	9683
	Direct Labor Efficiency Variance		12460

	Adjusted balance
work in process	336,000 +1742+1523= 339265
Finished goods	260000+1434+1254= 262688
Cost of goods sold	1540000+11074+9683-2000= 1558757