a.
Prepare the
a.

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

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 | 700 | |||
Cost of Goods Sold | 13,300 | |||
(To close overhead cost variances to Cost of Goods Sold) |
Table (2)
Note: Finished Goods Inventory is 5 percent of production.
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Chapter 17 Solutions
FUNDAMENTALS OF COST ACCOUNTING
- Horngren's Financial & Managerial Accounting: The Managerial Chapters, 8th Edition. Lily-Mae makes handheld calculators in two models: basic and professional. Lily-Mae estimated $812,500 of manufacturing overhead and 625,000 machine hours for the year. The basic model actually consumed 250,000 machine hours, and the professional model consumed 375,000 machine hours.Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model? Basic $325,000arrow_forward3. A corporation's working capital is calculated using which amounts? Total Assets And Total Liabilities Total Assets And Current Liabilities Current Assets And Current Liabilitiesarrow_forwardThe changes that occurred during a recent year in the accounts Retained Earnings and Treasury Stock will be presented in which financial statement? Balance Sheet Income Statement Statement Of Cash Flows Statement Of Comprehensive Income Statement Of Stockholders' Equityarrow_forward
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