Brodie Co. uses a standard job cost system and a denominator volume of 25,000 direct labour hours for allocating overhead. The actual output was 12,000 units, which cost $185,700 for direct labour (23,000 hours), $27,525 for variable overhead, and $136,400 for fixed overhead. The standard variable overhead per unit is $2 (2 hours @ $1 per hour), and the standard fixed overhead per unit is $10 (2 hours @ $5 per hour). All variances are immaterial and are closed to Cost of Goods Sold at the end of the period.
The entry to close the variable overhead variances includes a:
A) Credit to the variable overhead spending variance for $4,525
B) Credit to work in process for $24,000
C) Credit to the variable overhead efficiency variance for $1,000
D) Debit to Cost of Goods Sold for $5,525

Question

Quizplus · Accepted Answer

The entry to close the variable overhead variances includes a credit to the variable overhead spending variance for the difference between the actual variable overhead cost and the standard variable overhead cost. In this case, the actual variable overhead cost was $27,525 and the standard variable overhead cost was $23,000 (12,000 units x $2 per unit). The difference is $4,525, which is credited to the variable overhead spending variance. Therefore, the correct answer is A. The other choices are not relevant to the entry required to close the variable overhead variances.

Brodie Co Uses a Standard Job Cost System and a Denominator