Question

Closing the Balances in The Variance Accounts at the End of the Year Yohan Company has the following balances in its dir...

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 $13,550   
Direct Materials Usage Variance $1,120    
Direct Labor Rate Variance 870    
Direct Labor Efficiency Variance $12,640   

Unadjusted Cost of Goods Sold equals $1,570,000, unadjusted Work in Process equals $276,000, and unadjusted Finished Goods equals $180,000.

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".

Cost of Goods Sold
Direct Materials Price Variance
Direct Labor Efficiency Variance
Close variances with debit balance
Direct Materials Usage Variance
Direct Labor Rate Variance
Cost of Goods Sold
Close variances with credit balance

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Companies must restate costs and inventories at the end of the year to actual cost. So, variance accounts must be closed out and their balances applied to Cost of Goods Sold (if immaterial) or prorated among Cost of Goods Sold, Work in Process, and Finished Goods.

What is the adjusted balance in Cost of Goods Sold after closing out the variances?

$

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Companies must restate costs and inventories at the end of the year to actual cost. So, variance accounts must be closed out and their balances applied to Cost of Goods Sold (if immaterial) or prorated among Cost of Goods Sold, Work in Process, and Finished Goods.

2. 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 $164,600, and the prime cost in Finished Goods is $136,000. 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

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See Cornerstone 9.5.

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 $
1 0
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Answer #1
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".
Account Titles Debit Credit
Cost of Goods Sold $      26,190.00
        Direct Materials Price Variance $ 13,550.00
       Direct Labor Efficiency Variance $ 12,640.00
Close variances with debit balance
Direct Materials Usage Variance $        1,120.00
Direct Labor Rate Variance $           870.00
              Cost of Goods Sold $   1,990.00
Close variances with credit balance
What is the adjusted balance in Cost of Goods Sold after closing out the variances?
Cost of Good Sold = $1,570,000 + $26,190 - $1990 $ 1,594,200.00
2. 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 $164,600, and the prime cost in Finished Goods is $136,000. 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 $        1,120.00
Direct Labor Rate Variance $           870.00
              Cost of Goods Sold $   1,990.00
(b)
Work in Process (12640 x 12.19%) $        1,540.46
Finished Goods (12640 x 10.07%) $        1,272.80
Cost of Goods Sold (12640 x 77.74%) $        9,826.74
           Direct Labor Efficiency Variance $ 12,640.00
(c)
Work in Process (13550 x 12.19%) $        1,651.36
Finished Goods (13550 x 10.07%) $        1,364.43
Cost of Goods Sold (13550  x 77.74%) $      10,534.21
          Direct Materials Price Variance $ 13,550.00
Prime Costs Percentage of total
Work in Process $164,600 12.19%
Finished Goods 136,000 10.07%
Cost of Goods Sold 1,050,000 77.74%
Total $1,350,600 100.00%
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 $279,192
Finished Goods $182,637
Cost of Goods Sold $1,588,371
Work in Process Finished Goods Cost of Goods Sold
Unadjusted balance $276,000 $180,000 $1,570,000
Add: MPV $        1,651.36 $   1,364.43 $ 10,534.21
Less: MUV $ (1,120.00)
Less: LRV $    (870.00)
Add: LEV $        1,540.46 $   1,272.80 $   9,826.74
Adjusted balance $279,192 $182,637 $1,588,371
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