Problem 17-40 (Static) Prorating Overhead Costs (LO 17-1)

Parkeville Company manufactures a single product and started the year with no inventories. Selected information about results for the period just ended include the following:

Actual fixed manufacturing overhead $180,000

Actual variable manufacturing overhead132,000

Applied fixed manufacturing overhead200,000

Applied variable manufacturing overhead126,000

Production volume variance10,000 F

Variable overhead efficiency variance4,000 F

Five percent of this period's production has not been sold. There are never any work-in-process inventories.

Required:

a.Assume Parkeville writes off all variances to Cost of Goods Sold. Prepare the entries the company would make to record and close out the variances.

1. Record the purchase of various variable overhead resources.
2. Record the application of variable overhead at standard rates to production.
3. Record the variable overhead variances.
4. Record the closure of fixed overhead.
5. Record the closure of overhead cost variances to Cost of Goods Sold.

b.Assume Parkeville prorates all variances to the appropriate accounts. Prepare the entries the company would make to record and close out the variances.

1. Record the purchase of various variable overhead resources.
2. Record the application of variable overhead at standard rates to production.
3. Record the variable overhead variances.
4. Record the closure of fixed overhead.
5. Record the closure of overhead cost variances to Cost of Goods Sold and Finished Goods Inventory.