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Q$2.$ We recognize the following cost variances when recording related manufacturing transactions and when the actual is lower or higher than standard. When actual and standard are the same, no variance is recorded.

Ultimately, at the end of the year, we close these cost variances to

Requirements:

State what message each of the above cost variances does try to communicate?

We know that when a cost variance exists, that means RM Inventory, Cost of Goods Sold, WIP Inventory, and FG Inventory are overstated or understated.

What type of cost variances $($favorable or unfavorable$)$ do result in overstatement of the above accounts and what type of cost variance results in understatement of those accounts. Why?

When do we close cost variances to only cost of goods sold and when do we close cost variances to four accounts?

Gina Manufacturing Company had the following account balances at the end of the year. Make the necessary adjusting entry at end of year to close cost variances assuming they are significant.

$\backslash$table$[[$RM inventory,WIP Inventory,FG Inventory,CGS$],[100,000,243,000,162,000,495,000]]$

DM Price Variance

DL Efficiency Var.

Var. OH Efficiency

Fixed $OH$ Spending

Var.

Var.

a$.$ Given the balance of each of the cost variances, what message does each of the above cost variances express? That is$,$ what is the interpretation of each of the cost variances?

b$.$ Provide the necessary adjusting journal entry at end of year to close cost variances assuming they are significant.

c$.$ What would be the balance of RM Inventory, WIP Inventory, FG Inventory, and, Cost of Goods Sold after closing of the cost variances?

$\backslash$table$[[,$Adjusted Balance$],[$RM Inventory,$],[$WIP Inventory,$],[$FG Inventory,$],[$Cost of Goods Sold,$]]$

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