Question

Overhead Variances and Their Disposal

Warner Company has the following data for the past year:

Actual overhead	$470,000
Applied overhead:
Work-in-process inventory	$100,000
Finished goods inventory	200,000
Cost of goods sold	200,000
Total	$500,000

Warner uses the overhead control account to accumulate both actual and applied overhead.

Required:

1. Calculate the overhead variance for the year.

Provide the appropriate adjusting journal entry to close the overhead variance to Cost of Goods Sold.

	Work-in-Process Inventory Cash Cost of Goods Sold Finished Goods Inventory Overhead Control Work-in-Process Inventory
	Cash Cost of Goods Sold Finished Goods Inventory Overhead Control Work-in-Process Inventory

2. Assume the variance calculated is material. After prorating, close the variances to the appropriate accounts. If an amount box does not require an entry, leave it blank.

2. Assume the variance calculated is material. After prorating, close the variances to the appropriate accounts. If an amount box does not require an entry, leave it blank.

	Cost of Goods Sold Finished Goods Inventory Overhead Control Raw Materials Work-in-Process Inventory
	Cash Cost of Goods Sold Overhead Control Raw Materials Inventory
	Cash Overhead Control Raw Materials Work-in-Process Inventory Inventory
	Cash Finished Goods Inventory Overhead Control Raw Materials Inventory

Assume the variance calculated is material. After prorating, provide the final ending balances of these accounts.

Unadjusted Balance		Prorated Overapplied Overhead		Adjusted Balance
Work-in-Process Inventory	$100,000		$		$
Finished Goods Inventory	$200,000		$		$
Cost of Goods Sold	$200,000		$		$

3. What if the variance is of the opposite sign calculated in Requirement 1? Provide the appropriate adjusting journal entries for Requirements 1 and 2. For a compound transaction, if an amount box does not require an entry, leave it blank.

Variance immaterial	Cash Cost of Goods Sold Finished Goods Inventory Overhead Control Work-in-Process Inventory
	Cash Cost of Goods Sold Finished Goods Inventory Overhead Control Work-in-Process Inventory
Variance material	Cash Cost of Goods Sold Overhead Control Raw Materials Inventory
	Cash Raw Materials Overhead Control Work-in-Process Inventory Inventory
	Cash Raw Materials Finished Goods Inventory Overhead Control Inventory
	Cash Cost of Goods Sold Finished Goods Inventory Overhead Control Work-in-Process Inventory

Answer 1