Damson Products prepares monthly financial statements. It closes its variance accounts at that time. For the month of May the firm’s accounting records reveal the following variances (the comments were supplied by appropriate operating personnel).

The firm uses a standard fixed overhead allocation rate based on annual operations. The firm was closed several days when a nearby stream flooded after heavy rains. The firm does not have flood insurance, and the lost material and labor costs were charged to production. At the month end the firm has no raw material and no work in process inventories. The standard cost of finished goods inventory is $34,000, and the standard cost of goods sold is $305,000.

REQUIRED
A. For each variance, explain whether the total amount of the variance should all be closed as a production variance or whether part of the amount should be closed to a separate flood loss account.
B. Prepare journal entries to close out the variances.
C. What is the cost of finished goods and cost of goods sold after the variance accounts areclosed?

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Percent of Standard 0.04% 11.38% 0.11% 9.62% Variance Amount 658 U 12,600 U 376 F 9,700 U Comment Direct material price Direct material efficiency Direct labor price Direct labor efficiency Normal fluctuation $13,000 lost in spring flood Normal fluctuation $9,000 for days plant was closed during flood Normal fluctuation Normal fluctuation Normal fluctuation $10,200 due to time lost in flood; the rest represents normal decreased spring operations Variable overhead spending Variable overhead efficiency Fixed overhead spending Production volume 507 F 412 U 782 F 10,400 U 0.21% 0.18% 0.07% 11.29%