Question

Cornerstone Exercise 4.2 (Algorithmic)

Overhead Variances and Their Disposal

Warner Company has the following data for the past year:

Actual overhead	$240,500
Applied overhead:
Work-in-process inventory	$56,000
Finished goods inventory	112,000
Cost of goods sold	112,000
Total	$280,000

Warner uses the overhead control account to accumulate both actual and applied overhead.

Required:

1. Calculate the overhead variance for the year.
$ - Select your answer -UnderappliedOverappliedCorrect 2 of Item 1

Hide Provide the appropriate adjusting journal entry to close the overhead variance to Cost of Goods Sold.

Hide 2. Assume the variance calculated is material. After prorating, close the variances to the appropriate accounts. If an amount box does not require an entry, leave it blank.

Assume the variance calculated is material. After prorating, provide the final ending balances of these accounts.

	Unadjusted Balance		Prorated Overapplied Overhead		Adjusted Balance
Work-in-Process Inventory	$56,000		$		$
Finished Goods Inventory	$112,000		$		$
Cost of Goods Sold	$112,000		$		$

Hide 3. What if the variance is of the opposite sign calculated in Requirement 1? Provide the appropriate adjusting journal entries for Requirements 1 and 2. For a compound transaction, if an amount box does not require an entry, leave it blank. Variance immaterial Variance material

Answer 1

Solution 1:

Overhead variance = $280000 - $240500 = $39,500 overapplied.

B C E F G Credit Debit $39,500 Solution 1: Account Title Manufacturing Overhead Dr To Cost of Goods Sold (To record adjusting journal entry to close the overhead variance to Cost of Goods Sold) $39,500 Cost 11 12 Solution 2: Proportion of variance Work in Process Inventory Finished Goods Inventory Cost of Goods sold Total Proportion 56000 20.00% 112000 40.00% 112000 40.00% 280000 15 16 17 Credit Debit $39,500 18 Account Title Manufacturing Overhead Dr To Work in Process Inventory (39500*20%) To Finished Goods Inventory (39500*40%) To Cost of Goods Sold (39500*40%) 19 20 21 $7,900 $15,800 $15,800 Adjusted Balance Computation of Final Ending balance after prorating Prorated Unadjusted Overapplied balance Overhead Work in Process Inventory $56,000 $7,900 Finished Goods Inventory $112,000 $15,800 Cost of Goods sold $112,000 $15,800 24 25 26 27 $48,100 $96,200 $96,200 Sheet317 Sheet323 Sheet302 (2) Sheet227 (4) Sheet36 (7) Sheet302 (3) Sheet352 SH III 0 <

к NO Solution 3: Journal Entries (If Variance is of Opposite Sign) Account Title Requirement 1 Cost of Goods Sold Dr To Manufacturing Overhead No. Credit Debit $39,500 $39,500 Credit Account Title Requirement 2 Work in Process Inventory (39500*20%) Finished Goods Inventory (39500*40%) Cost of Goods Sold (39500*40%) To Manufacturing Overhead Debit $7,900 $15,800 $15,800 $39,500 10 11 12 13 14 15 16 17 18 19 20 Sheet317 Sheet323 Sheet302 (2) Sheet227 (4) Sheet36 (7) Sheet302 (3) Sheet352 SH III 0 <