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	$14,150
Direct Materials Usage Variance		$1,200
Direct Labor Rate Variance		820
Direct Labor Efficiency Variance	$12,700

Unadjusted Cost of Goods Sold equals $1,540,000, unadjusted Work in Process equals $306,000, and unadjusted Finished Goods equals $210,000.

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	fill in the blank 094f15ffff81032_2	fill in the blank 094f15ffff81032_3
	Direct Materials Price Variance	fill in the blank 094f15ffff81032_5	fill in the blank 094f15ffff81032_6
	Direct Labor Efficiency Variance	fill in the blank 094f15ffff81032_8	fill in the blank 094f15ffff81032_9
	Close variances with debit balance
	Direct Materials Usage Variance	fill in the blank 094f15ffff81032_11	fill in the blank 094f15ffff81032_12
	Direct Labor Rate Variance	fill in the blank 094f15ffff81032_14	fill in the blank 094f15ffff81032_15
	Cost of Goods Sold	fill in the blank 094f15ffff81032_17	fill in the blank 094f15ffff81032_18
	Close variances with credit balance

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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?

$fill in the blank 97a435017058fec_1

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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 $1,060,000, the prime cost in Work in Process is $165,400, and the prime cost in Finished Goods is $127,000. If an amount box does not require an entry, leave it blank or enter "0".

Note: Round all interim calculations to three decimal places, and round your final answers to the nearest dollar. Adjust credit entry for rounding to ensure debits equal credits in journal entry.

(a)	Direct Materials Usage Variance	fill in the blank bdee6a091fa3f97_2	fill in the blank bdee6a091fa3f97_3
	Direct Labor Rate Variance	fill in the blank bdee6a091fa3f97_5	fill in the blank bdee6a091fa3f97_6
	Cost of Goods Sold	fill in the blank bdee6a091fa3f97_8	fill in the blank bdee6a091fa3f97_9
(b)	Work in Process	fill in the blank bdee6a091fa3f97_11	fill in the blank bdee6a091fa3f97_12
	Finished Goods	fill in the blank bdee6a091fa3f97_14	fill in the blank bdee6a091fa3f97_15
	Cost of Goods Sold	fill in the blank bdee6a091fa3f97_17	fill in the blank bdee6a091fa3f97_18
	Direct Labor Efficiency Variance	fill in the blank bdee6a091fa3f97_20	fill in the blank bdee6a091fa3f97_21
(c)	Work in Process	fill in the blank bdee6a091fa3f97_23	fill in the blank bdee6a091fa3f97_24
	Finished Goods	fill in the blank bdee6a091fa3f97_26	fill in the blank bdee6a091fa3f97_27
	Cost of Goods Sold	fill in the blank bdee6a091fa3f97_29	fill in the blank bdee6a091fa3f97_30
	Direct Materials Price Variance	fill in the blank bdee6a091fa3f97_32	fill in the blank bdee6a091fa3f97_33

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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	$fill in the blank 8cb803fcd05503d_1
Finished Goods	$fill in the blank 8cb803fcd05503d_2
Cost of Goods Sold	$fill in the blank 8cb803fcd05503d_3