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 $14,350 Direct Materials Usage Variance $1,100 Direct Labor Rate Variance Direct Labor Efficiency Variance $12,580 820 Unadjusted Cost of Goods Sold equals $1,590,000, unadjusted Work in Process equals $286,000, and unadjusted Finished Goods equals $280,000. 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?

Answer 1

Solution:

1.)

Cost of goods sold	$26,930
Direct materials price variance		$14,350
Direct labor efficiency variance		$12,580
(To close variance with debit balance)

Direct materials usage variance	$1,100
Direct labor rate variance	$810
Cost of goods sold		$1,910
(To close variance with credit balance)

Adjusted balance in cost of goods sold after closing out the variances

=$1,590,000 + $26,930 - $1,910

=$1,615,020

2.a.)

Direct materials usage variance	$1,100
Direct labor rate variance	$810
Cost of goods sold		$1,910
(To close variances with immaterial balance)

b.)

Proration of direct labor efficiency variance	Prime cost	Variance prorated
Cost of goods sold	$1,050,000	$9,803(1050000× 0.9336%)
Work in process	$161,400	$1,507(161400 × 0.9336%)
Finished goods	$136,000	$1270(136000 ×0.9336%)
Total	$1,347,400	$12,580
Rate for proration	12,580/1,347,400 = 0.9336 %

Journal entry:

No.	Account title and explanation	Debit	Credit
1.)	Cost of goods sold	$9,803
	Work in process	$1,507
	Finished goods	$1,270
	Direct labor efficiency variance		$12,580
	(To prorate direct labor efficiency variance)

2.c )

Proration of direct materials price variance	Prime cost	Variance prorated
Cost of goods sold	$1,050,000	$11,183(1,050,000 ×1.0650%)
Work in process	$161,400	$1,719(161,400 × 1.0650%)
Finished goods	$136,000	$1,448(136,000 × 1.0650%)
Total	$1,347,400	$14,350
Rate of proration	14,350/1,347,400 =1.0650%

Journal entry

No.	Account title and explanation	Debit	Credit
1.)	Cost of goods sold	$11,183
	Work in process	$1,719
	Finished goods	$1,448
	Direct materials price variance		$14,350

(To prorated direct materials price variance)

3.)

Adjusted balance:

Work in process($286,000 +$1,507+$1,719)	$289,226
Finished goods($280,000 +$1,270+$1,448)	$282,718
Cost of goods sold ($1,590,000+$9803+$11,183)	$1,610,986