Question

Moleno Company produces a single product and uses a standard cost system. The normal production volume is 120,000 units; each unit requires five direct labor hours at standard. Overhead is applied on the basis of direct labor hours. The budgeted overhead for the coming year is as follows:

FOH	$2,160,000*
VOH	1,440,000
* At normal volume.

During the year, Moleno produced 118,600 units, worked 592,300 direct labor hours, and incurred actual fixed overhead costs of $2,150,400 and actual variable overhead costs of $1,422,800.

ournal entries for overhead variances were not discussed in this chapter. Typically, the overhead variance entries happen at the end of the year. Assume that applied fixed (variable) overhead is accumulated on the credit side of the fixed (variable) overhead control account. Actual fixed (variable) overhead costs are accumulated on the debit side of the respective control accounts. At the end of the year, the balance in each control account is the total fixed (variable) variance. Create accounts for each of the four overhead variances and close out the total variances to each of these four variance accounts. These four variance accounts are then usually closed to Cost of Goods Sold. Form a group with two to four other students, and prepare the journal entries that isolate the four variances. Finally, prepare the journal entries that close these variances to Cost of Goods Sold.

Refer to the list below for the exact wording of a label or an amount description within your income statement.

Amount Descriptions
Depreciation
Direct labor
Other
Flexible budget variance
Supervision
Utilities
Inspecting products
Maintenance
Supplies
Rent
Total conversion cost

GENERAL JOURNAL

	DATE	ACCOUNT	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12

Set up T accounts. Main overhead account (control), applied (credit) and actual (debit). Close variance accounts to control account. Close control (main) overhead account to cost of goods sold

Answer 1

Solution:

Preparing the Journal Entries for Overhead Variances and Journal Entries for Closing to Cost of Goods Sold:

Event	General Journal	Debit	Credit
	Overhead variance isolation:
1	VOH Control	$3,000
	VOH Efficiency Variance	$35,700
	VOH Spending Variance		$38,700
2	FOH Spending Variance	$90,000
	FOH Volume Variance	$18,000
	FOH Control		$108,000
	Closing to Cost of Goods Sold:
3	Cost of Goods Sold	$143,700
	VOH Efficiency Variance		$35,700
	FOH Spending Variance		$90,000
	FOH Volume Variance		$18,000
4	VOH Spending Variance	$38,700
	Cost of Goods Sold		$38,700