Question

Actual overhead is $156,890 and applied overhead is $157,000. The variance is considered immaterial. Which of the following is true?

COGS would be debited for $110.
COGS would be credited for $110.
The variance is immaterial, so no journal entry is needed.
The overhead control account would have an ending balance of $110.

Answer 1

Since the $110 variance between the actual and applied overhead is considered immaterial, no journal entry is needed, and there would be no effect on the Cost of Goods Sold (COGS) or the overhead control account.

Step-by-step explanation:

When the actual overhead is $156,890 and the applied overhead is $157,000, the difference or variance is $110. Since the variance is considered immaterial, generally accepted accounting principles (GAAP) would suggest that no journal entry is needed because the amount is not significant enough to warrant the effort to adjust the accounts.

Hence, there would be no effect on the Cost of Goods Sold (COGS) or on the overhead control account. If a company did choose to make an entry for an immaterial variance, they might adjust the COGS, but in this case, it is stated that the variance is immaterial, which means no entry is needed.