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 $13,450 Direct Materials Usage Variance $1,100 Direct Labor Rate Variance 870 Direct Labor Efficiency Variance $12,340 Unadjusted Cost of Goods Sold equals $1,500,000, unadjusted Work in Process equals $236,000, 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 Direct Materials Usage Variance Direct Labor Rate Variance Cost of Goods Sold Feedback 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? $ Feedback 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 $10,000 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 $165,200, and the prime cost in Finished Goods is $126,000. If an amount box does not require an entry, leave it blank or enter "0". Round all interim calculations to four decimal places, and round your final answers to the nearest dollar. (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 Feedback 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
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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 | $13,450 |
|
| Direct Materials Usage Variance |
$1,100
|
|
| Direct Labor Rate Variance |
870
|
|
| Direct Labor Efficiency Variance |
$12,340
|
Unadjusted Cost of Goods Sold equals $1,500,000, unadjusted Work in Process equals $236,000, and unadjusted Finished Goods equals $180,000.
Required:
1. Assume that the ending balances in the variance accounts are immaterial and prepare the
| Cost of Goods Sold | |||
| Direct Materials Price Variance | |||
| Direct Labor Efficiency Variance | |||
| Direct Materials Usage Variance | |||
| Direct Labor Rate Variance | |||
| Cost of Goods Sold |
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?
$
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 $10,000 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 $165,200, and the prime cost in Finished Goods is $126,000. If an amount box does not require an entry, leave it blank or enter "0".
Round all interim calculations to four decimal places, and round your final answers to the nearest dollar.
| (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 |
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 |
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