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	$13,450
Direct Materials Usage Variance		$1,150
Direct Labor Rate Variance		800
Direct Labor Efficiency Variance	$12,340

Unadjusted Cost of Goods Sold equals $1,520,000, unadjusted Work in Process equals $286,000, and unadjusted Finished Goods equals $270,000.

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 $160,200, and the prime cost in Finished Goods is $128,000. 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

	ANSWER CAN BE GIVEN BY FOLLOWING STEPS
(A)	JOURNAL ENTRIES TO ENSURE DEBITS EQUALS CREDITS		All figures in $
		Account	Dr	Cr
		Cost of good sold	25790
	(a)	Direct Material Price variance		13450
		Direct Labour Efficiency Varicence		12340
		(To close Varice with Debit balance )
	(b)	Direct Material Usage Varience	1150
		Direct Labour Rate Varience	800
		Cost of Goods Sold		1950
		(To close Varice with credit balance )
	Adjusted Bal. in Cost of Good Sold After closing Variances
		Prticulars	Amount
		Unadjusted Cost of Good Sold	1520000
	Add	Direct Material Price variance	13450
	Add	Direct Labour Efficiency Varicence	12340
	Less	Direct Material Usage Varience	1150
	Less	Direct Labour Rate Varience	800
	Adjusted Bal. in Cost of good sold		1543840
	(B)
		Particulars	Prime Cost	% of Total
		Work in progress	160200	11.97%
		Finished Goods	128000	9.57%
		Cost of Good Sold	1050000	78.46%
			1338200	100%
		TOTAL VARINCES	23840
		Work in progress	3087
		Finished Goods	2467
		Cost of Good Sold	20236
		Direct Material Price variance		13450
		Direct Labour Efficiency Varicence		12340	25790
		Direct Material Usage Varience	1150
		Direct Labour Rate Varience	800		1950
		Work in progress		233
		Finished Goods		187
		Cost of Good Sold		1530
	Adjusted Balances after in workin progress , Finished Goods and Cost of good sold after closing Out all
	the variences
	WORK IN PROGRESS
		$286000+ ($23840*11.97%)
		$286000+$2853.65
		$288853.65
	FINISHED GOODS
		$270000+ ($23840*9.57%)
		$270000+2281.49
		$272281.49
	COST OF GOOD SOLD
		$1520000+ ($23840*78.46%)
		$ 1520000+$18704.86
		$1538704.86
	Thus
	ADJUSTED BALANCES ARE AS BELOW
	PARTICULARS		ADJUSTED BALANCE
	WORK IN PROGRESS		$ 288854
	FINISHED GOODS		$ 272281
	COST OF GOODS SOLD		$ 1538705