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	$14,050
Direct Materials Usage Variance		$1,150
Direct Labor Rate Variance		870
Direct Labor Efficiency Variance	$12,520

Unadjusted Cost of Goods Sold equals $1,570,000, unadjusted Work in Process equals $316,000, and unadjusted Finished Goods equals $190,000.

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".

	Cost of Goods Sold
	Direct Materials Price Variance
	Direct Labor Efficiency Variance
	Close variances with debit balance
	Direct Materials Usage Variance
	Direct Labor Rate Variance
	Cost of Goods Sold
	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 $11,000 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 $160,800, and the prime cost in Finished Goods is $131,000. 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)	Direct Materials Usage Variance
	Direct Labor Rate Variance
	Cost of Goods Sold
(b)	Work in Process
	Finished Goods
	Cost of Goods Sold
	Direct Labor Efficiency Variance
(c)	Work in Process
	Finished Goods
	Cost of Goods Sold
	Direct Materials Price Variance

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

The answer is given below.Thanks

	1)
	Account title	debit-$	credit-$
1	cost of goods sold	26,670
	direct material price variance		14,150
	direct labor efficiency variance		12,520
2	Direct Materials Usage Variance	1,150
	Direct Labor Rate Variance	870
	cost of goods sold		2,020
calculation of adjusted balance of cost of goods sold	$
unadjusted cost of goods sold balance	1,570,000
add : net variance adjusted	24,650
adjusted balance of cost of goods sold	1,545350
	2)
	Account title	debit-$	credit-$
a)	Direct Materials Usage Variance	1,150
	Direct Labor Rate Variance	870
	cost of goods sold		2020
b)*	cost of goods sold	9797
	work in process	1500
	finished goods	1222
	direct labor efficiency variance		12,520
c)**	cost of goods sold	11073
	work in process	1696
	finished goods	1381
	direct material price variance		14,150
b)*	cost of goods sold	12520*1050000/(1050000+160800+131000)	9797
	work in process	12520*160800/(1050000+160800+131000)	1500
	finished goods	12520*131000/(1050000+160800+131000)	1222
c)**	cost of goods sold	14150*1050000/(1050000+160800+131000)	11073
	work in process	14150*160800/(1050000+160800+131000)	1696
	finished goods	14150*131000/(1050000+160800+131000)	1381
calculation of adjusted balance	cost of goods sold	work in process	finished goods
unadjusted balance	1,570,000	316,000	190,000
add : net variance adjusted	18,850	3,196	2,603
adjusted balance	1,588850	319196	192603