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

Req 1.
Jouurnal entries
Cost of goods sold Dr.			26570
material price variance				14050
labour efficiency variance				12520
Material usage variance Dr.			1150
Labor rate variance Dr.			870
Cost of goods sold				2020
Unadjusted balance of COGS\				1570000
Add: Debit balance of variances				26570
				1596570
Less: Credit Balance of Variances				2020
Adjusted Cost of goods sold				1594550
Req 2.
Allocation of Material price variance
	Prime Cost	% of PC	MPV	Alocated MPV
COGS	1050000	78.25%	14050	10995
WIP	160800	11.98%	14050	1683
FG	131000	9.76%	14050	1372
Total PC	1341800	100.00%	14050	14050
Allocation of Labour efficiecy variance
	Prime Cost	% of PC	LEV	Alocated MPV
COGS	1050000	78.25%	12520	9797
WIP	160800	11.98%	12520	1500
FG	131000	9.76%	12520	1223
Total PC	1341800	100.00%	12520	12520
Journal entries:
Material usage variance Dr.			1150
Labor rate variance Dr.			870
Cost of goods sold				2020
Cost of goods sold Dr.			10995
Wwork in process inventory Dr.			1,683
Finihed Goods inventory Dr.			1,372
material price variance				14050
Cost of goods sold Dr.			9797
Wwork in process inventory Dr.			1500
Finihed Goods inventory Dr.			1,223
Labour efficiency variance				12520
Adjustted balance:
Work in process = 316000 + 1683+1500 = 319183
Finished Goods inventory=190000+1372+1223 =192595
Cost of goods sold =1570000+2020+10995+9797 = 1592812