Disposition of variances A selected portion of Hal Luke Company's trial balance is pro- vided on the top of the next page prior to closing the books. The company manufactures many kinds of products which have different materials, direct labor, and overhead requirements. Company policy is to distribute any variance to Cost of Goods Sold if it is less than 3 percent of sales. If a variance is 3 or more percent of sales, it is allocated to the inventory accounts and Cost of Goods Sold.

An analysis of account balances reveals that they contain the following proportion of product costs:

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Direct materials. Direct labor... Manufacturing overhead....... Finished WIP Goods CGS 40% 10% 35% 12 48 285 25 15 65 50