Brodie Co. uses a standard job cost system and a denominator volume of 25,000 direct labor hours for allocating overhead. The actual output was 12,000 units, which cost $185,700 for direct labor (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 fixed overhead variances includes a
A) Credit to work in process for $120,000
B) Debit to fixed overhead control for $125,000
C) Debit to Cost of Goods Sold for $16,400
D) Debit to the fixed overhead production volume variance for $5,000

Question

Quizplus · Accepted Answer

Since all variances are immaterial and are closed to Cost of Goods Sold at the end of the period, the debit to fixed overhead control for the actual amount of $136,400 will be closed to Cost of Goods Sold. Therefore, the only entry necessary to close the fixed overhead variances is the debit to Cost of Goods Sold for the difference between the actual overhead ($136,400) and the applied overhead ($120,000). This difference is $16,400, so the correct answer is C. The other choices are not correct because they do not reflect the correct accounting treatment for fixed overhead variances.

Brodie Co Uses a Standard Job Cost System and a Denominator