question archive Patel and Sons Inc
Patel and Sons Inc
Subject:AccountingPrice:3.86 Bought8
Patel and Sons Inc. uses a standard cost system to apply factory overhead costs to units produced. Practical capacity for the plant is defined as 54,300 machine hours per year, which represents 27,150 units of output. Annual budgeted fixed factory overhead costs are $271,500 and the budgeted variable factory overhead cost rate is $3.40 per unit. Factory overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual output for the year was 20,900 units, which took 43,300 machine hours. Actual fixed factory overhead costs for the year amounted to $261,500 while the actual variable overhead cost per unit was $3.30.
Based on the information provided above, provide an appropriate end-of-year closing entry for each of the following two independent situations: (a) the net factory overhead cost variance is closed entirely to Cost of Goods Sold (CSG), and (b) the net factory overhead variance is allocated among WIP Inventory, Finished Goods Inventory, and CGS using the following percentages: 10%, 20%, and 70%, respectively. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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(a)
Debit:
Factory overhead variance 13,090
Credit:
Cost of Goods Sold (CGS) 13,090
(b)
Debit:
Factory overhead variance 13,090
Credit:
WIP inventory 1,309
Finished goods inventory 2,618
CGS 9,163
Step-by-step explanation
Legend: Factory overhead cost = FOH
Actual FOH cost
= actual fixed FOH cost + actual variable FOH cost
= 261,500 + (3.3 actual variable rate per unit × 20,900 actual units)
= 261,500 + 68,970
= 330,470
Standard FOH cost
= standard fixed FOH cost + standard variable FOH cost
= 271,500 + ( 3.4 budgeted variable rate per unit × 20,900 actual units)
= 272,500 + 71,060
= 343,560
Variance
= actual FOH cost - standard FOH cost
= 330,470 - 343,560
= 13,090 favorable
(a) closed entirely to Cost of Goods Sold (CGS):
Debit:
Factory overhead variance 13,090
Credit:
Cost of Goods Sold (CGS) 13,090
(b) allocated among WIP Inventory, Finished Goods Inventory, and CGS
Debit:
Factory overhead variance 13,090
Credit:
WIP inventory 1,309*
Finished goods inventory 2,618**
CGS 9,163***
*(13,090 ×.1)
**(13,090 × .2)
***(13,090 × .7)
