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1. Explain how standard costs and variances are recorded in the accounts of a business. use the reading below a A 1 Prepare journal entries

1. Explain how standard costs and variances are recorded in the accounts of a business.
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a A 1 Prepare journal entries for standard costs and account for price and quantity variances. We have shown how companies use standard costs in management reports. Most standard cost systems also record these costs and variances in accounts. This practice simplifies recordkeeping and helps in preparing reports. Although we do not need knowledge of standard cost accounting practices to understand standard costs and their use, we must know how to interpret the accounts in which standard costs and variances are recorded. The entries in this section briefly illustrate the important aspects of this process for G-Max's standard costs and variances for May. The first of these entries records standard materials cost incurred in May in the Work in Process Inventory account. This part of the entry is similar to the usual accounting entry, but the amount of the debit equals the standard cost ($35,000) instead of the actual cost ($37,800). This entry credits Raw Materials Inventory for actual cost. The difference between standard and actual direct materials costs is recorded with debits to two separate materials variance accounts (recall @ Exhibit 8.10). Both the materials price and quantity variances are recorded as debits because they reflect additional costs higher than the standard cost (if actual costs are less than the standard, they are recorded as credits). This treatment (debit) reflects Page 315 their unfavorable effect because they represent higher costs and lower income. May 31 Work in Process Inventory (standard cost) 35.000 Type here to search 851 PM 4/18/2021 player-meducation.com/epub_4eep + MY Access School Google Space Dalawi n Reading MY Access! Test Del Slug looks Black nightstands Medical Term Book Google o 1 YURUB DRM RERUWE TE 35,000 1,800 1,000 May 31 Work in Process Inventory (standard cost) Direct Materials Price Variance Direct Materials Quantity Variance Raw Materials Inventory (actual cost) Record standard cost of direct materials used and record materials variances. 37,800 *Many companies record the materials price variance when materials are purchased. For simplicity, we record both the materials price and quantity variances when materials are issued to production The second entry debits Work in Process Inventory for the standard labor cost of the goods manufactured during May ($56,000). Actual labor cost ($56,100) is recorded with a credit to the Factory Wages Payable account. The difference between standard and actual labor costs is explained by two variances (see Exhibit 8.11). The direct labor rate variance is unfavorable and is debited to that account. The direct labor efficiency variance is favorable and that account is credited. The direct labor efficiency variance is favorable because it represents a lower cost and a higher net income. May 31 Work in Process Inventory (standard cost) Direct Labor Rate Variance Type here to search ORI 56.000 11700 851 PM 4/18/2021 Read Black nightstands Medical form Book Date Uslug ook MY Accesat lest Del Google Space Google MY Access School SAOP Q 4 56,000 1,700 May 31 Work in Process Inventory (standard cost) Direet Labor Rate Variance Direct Labor Efficiency Variance Factory Wages Payable (actual cost) Record standard cost of direct labor used and record labor variances. 1,600 56.100 The entry to assign standard predetermined overhead to the cost of goods manufactured must debit the $7,000 predetermined amount to the Work in Process Inventory account. Actual overhead costs of $7,650 were debited to Factory Overhead during the period (entries not shown here). Thus, when Factory Overhead is applied to Work in Process Inventory, the actual amount is credited to the Factory Overhead account. To account for the difference between actual and standard overhead costs, the entry includes a $250 debit to the Variable Overhead Spending Variance, a $100 credit to the Variable Overhead Efficiency Variance, and a $500 debit to the Volume Variance (recall Exhibits 8A.3 and 84.4). (An alternative (simpler approach is to record the difference with a $150 debit to the Controllable Variance account and a $500 debit to the Volume Variance account.) May 31 Work in Process Inventory Volume Variance Type here to search 7,000 500 8:52 PM 4/18/2021 ES @ @ player-uimheducation.com/pub/s 4e9epublic.264.23285 data uuid-6b3183 MY Access School a Google Space Datawi # MY Access Test Del Skulooks Reading Medical Term Book Black nightstands Google WA f 7,000 500 250 100 May 31 Work in Process Inventory Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance Factory Overhead Apply overhead at standard rate of $2 per standard direct labor hour (3.500 hours) and record overhead variances 7.650 The balances of these different variance accounts accumulate until the end of the accounting period. As a result, the unfavorable variances of some months can offset the favorable variances of other months. Point of variances are material, they can be allocated between Work in Process Inventory. Finished Goods Inventory, and Cost of Goods Sold. This closing process is explained in advanced courses These ending variance account balances, which reflect results of the period's various transactions and events, are closed at period-end. If the amounts are immaterial, they are added to or subtracted from the balance of the Cost of Goods Sold account. This process is similar to that shown in the job order costing chapter for eliminating an underapplied or overapplied balance in the Factory Overhead account. (Note: These variance balances, which represent differences between actual and standard costs, must be added to or subtracted from the materials, labor, and overhead costs recorded. In this way, the recorded costs equal the actual costs incurred in the period; a company must use actual costs in external financial statements Type here to search RI 8:52 PM 4/18/2021 a 6 prepared in accordance with generally accepted accounting principles.) Standard Costing Income Statement In addition to the reports discussed in this chapter, management can use a standard costing income statement to summarize company performance for a period. This income statement reports sales and cost of goods sold at their standard amounts, and then lists the individual sales and cost variances to compute gross profit at actual cost. Page 316 Exhibit 84.5 provides an example, Unfavorable variances are added to cost of goods sold at standard cost; favorable variances are subtracted from cost of goods sold at standard cost. EHBIT BAS Standard Conting income Statement Standard Costing Income Statement For Year Ended December 31, 2019 Sales revenue at standard Sales price variance Sales volume variance Sales revenue actual Cost of goods sold (at standard) Manning ances Type here to search *** O E 852 PM 4/18/2021 F10 @ Priser %6 2 & S CHUO ud 0063 DO player.meducation.com/pu MY Access! School Google Space 1 Apps Google Datewise My Access Test Del SlugBooks - Black nightstands Medical Term Book = > ... SH . 8 SES VUT vartile Sales revenue (actual) Cost of goods sold (at standard) Manufacturing cost variances Direct materials price variance Direct materials quantity variance. Direct labor rate variance Direct labor efficiency variance. Variable overhead spending variance Variable overhead efficiency variance Foxed overhead spending variance Fored overhead volume variance Total manufacturing cost variances Cost of goods sold (actual). Gross profit Selling expenses General and administrative expenses. Income from operations. Add unfavorable variances subtract favorable variances - *** ***** Type here to search ORI a A 1 Prepare journal entries for standard costs and account for price and quantity variances. We have shown how companies use standard costs in management reports. Most standard cost systems also record these costs and variances in accounts. This practice simplifies recordkeeping and helps in preparing reports. Although we do not need knowledge of standard cost accounting practices to understand standard costs and their use, we must know how to interpret the accounts in which standard costs and variances are recorded. The entries in this section briefly illustrate the important aspects of this process for G-Max's standard costs and variances for May. The first of these entries records standard materials cost incurred in May in the Work in Process Inventory account. This part of the entry is similar to the usual accounting entry, but the amount of the debit equals the standard cost ($35,000) instead of the actual cost ($37,800). This entry credits Raw Materials Inventory for actual cost. The difference between standard and actual direct materials costs is recorded with debits to two separate materials variance accounts (recall @ Exhibit 8.10). Both the materials price and quantity variances are recorded as debits because they reflect additional costs higher than the standard cost (if actual costs are less than the standard, they are recorded as credits). This treatment (debit) reflects Page 315 their unfavorable effect because they represent higher costs and lower income. May 31 Work in Process Inventory (standard cost) 35.000 Type here to search 851 PM 4/18/2021 player-meducation.com/epub_4eep + MY Access School Google Space Dalawi n Reading MY Access! Test Del Slug looks Black nightstands Medical Term Book Google o 1 YURUB DRM RERUWE TE 35,000 1,800 1,000 May 31 Work in Process Inventory (standard cost) Direct Materials Price Variance Direct Materials Quantity Variance Raw Materials Inventory (actual cost) Record standard cost of direct materials used and record materials variances. 37,800 *Many companies record the materials price variance when materials are purchased. For simplicity, we record both the materials price and quantity variances when materials are issued to production The second entry debits Work in Process Inventory for the standard labor cost of the goods manufactured during May ($56,000). Actual labor cost ($56,100) is recorded with a credit to the Factory Wages Payable account. The difference between standard and actual labor costs is explained by two variances (see Exhibit 8.11). The direct labor rate variance is unfavorable and is debited to that account. The direct labor efficiency variance is favorable and that account is credited. The direct labor efficiency variance is favorable because it represents a lower cost and a higher net income. May 31 Work in Process Inventory (standard cost) Direct Labor Rate Variance Type here to search ORI 56.000 11700 851 PM 4/18/2021 Read Black nightstands Medical form Book Date Uslug ook MY Accesat lest Del Google Space Google MY Access School SAOP Q 4 56,000 1,700 May 31 Work in Process Inventory (standard cost) Direet Labor Rate Variance Direct Labor Efficiency Variance Factory Wages Payable (actual cost) Record standard cost of direct labor used and record labor variances. 1,600 56.100 The entry to assign standard predetermined overhead to the cost of goods manufactured must debit the $7,000 predetermined amount to the Work in Process Inventory account. Actual overhead costs of $7,650 were debited to Factory Overhead during the period (entries not shown here). Thus, when Factory Overhead is applied to Work in Process Inventory, the actual amount is credited to the Factory Overhead account. To account for the difference between actual and standard overhead costs, the entry includes a $250 debit to the Variable Overhead Spending Variance, a $100 credit to the Variable Overhead Efficiency Variance, and a $500 debit to the Volume Variance (recall Exhibits 8A.3 and 84.4). (An alternative (simpler approach is to record the difference with a $150 debit to the Controllable Variance account and a $500 debit to the Volume Variance account.) May 31 Work in Process Inventory Volume Variance Type here to search 7,000 500 8:52 PM 4/18/2021 ES @ @ player-uimheducation.com/pub/s 4e9epublic.264.23285 data uuid-6b3183 MY Access School a Google Space Datawi # MY Access Test Del Skulooks Reading Medical Term Book Black nightstands Google WA f 7,000 500 250 100 May 31 Work in Process Inventory Volume Variance Variable Overhead Spending Variance Variable Overhead Efficiency Variance Factory Overhead Apply overhead at standard rate of $2 per standard direct labor hour (3.500 hours) and record overhead variances 7.650 The balances of these different variance accounts accumulate until the end of the accounting period. As a result, the unfavorable variances of some months can offset the favorable variances of other months. Point of variances are material, they can be allocated between Work in Process Inventory. Finished Goods Inventory, and Cost of Goods Sold. This closing process is explained in advanced courses These ending variance account balances, which reflect results of the period's various transactions and events, are closed at period-end. If the amounts are immaterial, they are added to or subtracted from the balance of the Cost of Goods Sold account. This process is similar to that shown in the job order costing chapter for eliminating an underapplied or overapplied balance in the Factory Overhead account. (Note: These variance balances, which represent differences between actual and standard costs, must be added to or subtracted from the materials, labor, and overhead costs recorded. In this way, the recorded costs equal the actual costs incurred in the period; a company must use actual costs in external financial statements Type here to search RI 8:52 PM 4/18/2021 a 6 prepared in accordance with generally accepted accounting principles.) Standard Costing Income Statement In addition to the reports discussed in this chapter, management can use a standard costing income statement to summarize company performance for a period. This income statement reports sales and cost of goods sold at their standard amounts, and then lists the individual sales and cost variances to compute gross profit at actual cost. Page 316 Exhibit 84.5 provides an example, Unfavorable variances are added to cost of goods sold at standard cost; favorable variances are subtracted from cost of goods sold at standard cost. EHBIT BAS Standard Conting income Statement Standard Costing Income Statement For Year Ended December 31, 2019 Sales revenue at standard Sales price variance Sales volume variance Sales revenue actual Cost of goods sold (at standard) Manning ances Type here to search *** O E 852 PM 4/18/2021 F10 @ Priser %6 2 & S CHUO ud 0063 DO player.meducation.com/pu MY Access! School Google Space 1 Apps Google Datewise My Access Test Del SlugBooks - Black nightstands Medical Term Book = > ... SH . 8 SES VUT vartile Sales revenue (actual) Cost of goods sold (at standard) Manufacturing cost variances Direct materials price variance Direct materials quantity variance. Direct labor rate variance Direct labor efficiency variance. Variable overhead spending variance Variable overhead efficiency variance Foxed overhead spending variance Fored overhead volume variance Total manufacturing cost variances Cost of goods sold (actual). Gross profit Selling expenses General and administrative expenses. Income from operations. Add unfavorable variances subtract favorable variances - *** ***** Type here to search ORI

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