Chapter 17, Problem 40P

a.

To determine

Prepare the journal entries that the company would make to record and close out the variances.

Explanation of Solution

Prepare the journal entries that the company would make to record and close out the variances as follows:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Actual Variable Overhead		132,000
	Accounts Payable			132,000
	(To record the purchase of variable overhead resources)
	Work-in-Process Inventory		126,000
	Applied Variable Overhead			126,000
	(To record the variable overhead at standard rates to production)
	Applied Variable Overhead		126,000
	Variable Overhead Spending Variance		10,000
	Variable Overhead Efficiency Variance			4,000
	Actual Variable Overhead			132,000
	(To record the variable overhead variances)
	Applied Fixed Overhead		200,000
	Fixed Overhead Price Variance			10,000
	Fixed Overhead Production Volume variance			10,000
	Actual Fixed Overhead			180,000
	(To close the variable overhead variances)
	Variable Overhead Efficiency Variance		4,000
	Fixed Overhead Price Variance		10,000
	Fixed Overhead Production volume variance		10,000
	Variable Overhead Spending Variance			10,000
	Cost of Goods Sold			14,000
	(To close overhead cost variances to Cost of Goods Sold)

Table (1)

Working notes (1): Variable costs:

Actual Costs		Spending Variance	Actual Inputs at Standard Price		Efficiency Variance	Flexible Budget (Standard Inputs Allowed for Good Output)
$132,000			$122,000 ($126,000 – $4,000)			$126,000
		$10,000 U ( $132,000 – $122,000)			$4,000 F

Figure (1)

Working notes (1): Fixed costs:

Actual Costs		Price Variance	Budget		Production Volume Variance	Applied
$180,000			$190,000			$200,000
		$10,000 F ($180,000 – $190,000)			$10,000 F ($190,000 – $200,000)

Figure (2)

b.

To determine

Prepare the journal entries that the company would make to record and close out the variances.

Explanation of Solution

Prepare the journal entries that the company would make to record and close out the variances as follows:

Date	Account Titles and Explanations	Post. Ref.	Debit ($)	Credit ($)
	Actual Variable Overhead		132,000
	Accounts Payable			132,000
	(To record the purchase of variable overhead resources)
	Work-in-Process Inventory		126,000
	Applied Variable Overhead			126,000
	(To record the variable overhead at standard rates to production)
	Applied Variable Overhead		126,000
	Variable Overhead Spending Variance		10,000
	Variable Overhead Efficiency Variance			4,000
	Actual Variable Overhead			132,000
	(To record the variable overhead variances)
	Applied Fixed Overhead		200,000
	Fixed Overhead Price Variance			10,000
	Fixed Overhead Production Volume variance			10,000
	Actual Fixed Overhead			180,000
	(To close the variable overhead variances)
	Variable Overhead Efficiency Variance		4,000
	Fixed Overhead Price Variance		10,000
	Fixed Overhead Production volume variance		10,000
	Variable Overhead Spending Variance			10,000
	Finished Goods Inventory  $\left(\$14,000\times \frac{5}{100}\right)$			700
	Cost of Goods Sold $\left(\$14,000\times \frac{95}{100}\right)$			13,300
	(To close overhead cost variances to Cost of Goods Sold)

Table (2)

Note: Finished Goods Inventory is 5 percent of production.