Question

Problem 17-40 (Algo) Prorating Overhead Costs (LO 17-1)

Parkeville Company manufactures a single product and started the year with no inventories. Selected information about results for the period just ended include the following:

 

Actual fixed manufacturing overhead	$	174,000
Actual variable manufacturing overhead		135,000
Applied fixed manufacturing overhead		200,000
Applied variable manufacturing overhead		132,000
Production volume variance		16,000	F
Variable overhead efficiency variance		7,000	F

 

Eight percent of this period's production has not been sold. There are never any work-in-process inventories.

 

Required:

a. Assume Parkeville writes off all variances to Cost of Goods Sold. Prepare the entries the company would make to record and close out the variances.

b. Assume Parkeville prorates all variances to the appropriate accounts. Prepare the entries the company would make to record and close out the variances.

Answer 1

A)

No	Event	General Journal	Debit	Credit
A	1	Actual variable overheadselected answer correct	135,000selected answer correct	not attempted
		Accounts payableselected answer correct	not attempted	135,000selected answer correct
B	2	Work-in-process inventoryselected answer correct	132,000selected answer correct	not attempted
		Applied variable overheadselected answer correct	not attempted	132,000selected answer correct
C	3	Applied variable overheadselected answer correct	132,000selected answer correct	not attempted
		Variable overhead spending varianceselected answer correct	10,000selected answer correct	not attempted
		Variable overhead efficiency varianceselected answer correct	not attempted	7,000selected answer correct
		Actual variable overheadselected answer correct	not attempted	135,000selected answer correct
D	4	Applied fixed overheadselected answer correct	200,000selected answer correct	not attempted
		Fixed overhead price varianceselected answer correct	not attempted	10,000selected answer correct
		Fixed overhead production volume varianceselected answer correct	not attempted	16,000selected answer correct
		Actual fixed overheadselected answer correct	not attempted	174,000selected answer correct
E	5	Fixed overhead price varianceselected answer correct	10,000selected answer correct	not attempted
		Fixed overhead production volume varianceselected answer correct	16,000selected answer correct	not attempted
		Variable overhead efficiency varianceselected answer correct	7,000selected answer correct	not attempted
		Variable overhead spending varianceselected answer correct	not attempted	10,000selected answer correct
		Cost of goods soldselected answer correct	not attempted	23,000selected answer correct

step 1) for VOH 

132,000- 7,000 F= 125,000

135,000- 125,000= 10,000 U 

135,000- 132,000= 3,000 U

step 2) for FOH

174,000- 200,000= 26,000 F         

200,000- 16,000 F= 184,000

174,000- 184,000= 10,000 F

for entry E COGS: 16,000 F+ 7,000F= 23,000

For B) all journal entries same for entries A-D in part A except E

Fixed overhead price variance                           10,000

Fixed overhead production volume variance      16,000

Variable overhead efficiency variance                   7,000

     Cost of goods sold                                                                   21,160

     Finished goods inventory                                                            1, 840

     Variable overhead spending variance                                      10,000

23,000* 95%(100- 8)= 21,160

23,000* 8%= 1,840

selected answer correctnoselected ansselected answer correct

Answer 2

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