Question

Warner Company has the following data for the past year: Actual overhead $470,000 Applied overhead: Work-in-process inventory $100,000 Finished goods inventory 200,000 Cost of goods sold 200,000 Total $500,000 Warner uses the overhead control account to accumulate both actual and applied overhead. Required: 1. Calculate the overhead variance for the year. Provide the appropriate adjusting journal entry to close the overhead variance to Cost of Goods Sold. 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 $100,000 Finished Goods Inventory $200,000 Cost of Goods Sold $200,000 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 = $500000 - $470000 = $30,000 Overapplied

Account Title	Debit	Credit
Manufacturing Overhead Dr	$30,000
To Cost of Goods Sold		$30,000
(To record adjusting journal entry to close the overhead variance to Cost of Goods Sold)

Solution 2:

Proportion of variance	Cost	Proportion
Work in Process Inventory	100000	20.00%
Finished Goods Inventory	200000	40.00%
Cost of Goods sold	200000	40.00%
Total	500000

Account Title	Debit	Credit
Manufacturing Overhead Dr	$30,000
To Work in Process Inventory (30000*20%)		$6,000
To Finished Goods Inventory (30000*40%)		$12,000
To Cost of Goods Sold (30000*40%)		$12,000

Computation of Final Ending balance after prorating
	Unadjusted balance	Prorated Overapplied Overhead	Adjusted Balance
Work in Process Inventory	$1,00,000	$6,000	$94,000
Finished Goods Inventory	$2,00,000	$12,000	$1,88,000
Cost of Goods sold	$2,00,000	$12,000	$1,88,000

Solution 3:

Journal Entries (If Variance is of Opposite Sign)
No.	Account Title	Debit	Credit
Requirement 1	Cost of Goods Sold Dr	$30,000
	To Manufacturing Overhead		$30,000
	Account Title	Debit	Credit
Requirement 2	Work in Process Inventory (30000*20%)	$6,000
	Finished Goods Inventory (30000*40%)	$12,000
	Cost of Goods Sold (30000*40%)	$12,000
	To Manufacturing Overhead		$30,000