Part 2: Closing variance accounts
Given below are the account balances before closing variances.
Dr.
Cr
Materials Inventory
$ 25,000
Work in Process
50,000
Finished Goods
100,000
Cost of Goods Sold
350,000
Direct Materials Price Variance
1,500
Direct Materials Efficiency Variance
$1,200
Direct Labor Price Variance
1,700
Direct Labor Efficiency Variance
1,400
VOH Spending Variance
1,800
VOH Efficiency Variance
1,900
FOH Spending Variance
2,200
FOH Production Volume Variance
5,600
The direct materials component of Work in Process, Finished Goods, and Cost of Goods Sold is 20% of ending
balances.
a.
Prepare the journal entry to close the variances assuming that the variances are insignificant (small).
What are the ending balances in the inventories and Cost of Goods Sold after the entry?
b.
Prepare the journal entries to close the variances and prorate to the appropriate accounts assuming that
the amounts are significant (large). What are the ending balances in the inventories and Cost of Goods
Sold after the entries?
