1. Read pages 304-306 of your textbook - P6: Standard Cost Accounting System 2. Explain how standard costs and variances are recorded in the accounts of a business 3. Using the information about the Wilson Company from the Chapter 8 lecture notes, record the standard DM, DL, and overhead costs and variances in journal entries 304 Chapter 8 Hexbie Budgets and Standard Coss G. Max reports actual variable overhead of 56.350.o $450 less than budgeted. This means it has a favor able variable overhead spending Variance of S450 (56.350 - 56.800). G-Max also used so fewer direct Tabor hours than hudgeted to make 3.500 unit. Thus, G-Max has a favorable variable overhead officiency variance of $200 (56.800 57.000 Fixed Overhead Variances Exhibit RA.4 provides insight into the cames of G-Max 51.300 unfavorable fixed werbead variance: G-Max incurred $11.800 in actual fixed overhead this amount is $200 less than the $12,00 hudpeted fixed overhead at the expected production level of 4.000 unit se Exhibit 8.12). This $200 favorable fixed overhead spending variance suggeas pood control of fixed overhead costs. We showed how to compute the $1.500 unfavorable volume variance in the chapter, and its calculation is repeated in Exhibit A4 EXHIBIT BA.4 Red Overhead Spending and Volume Variances Hued hederhad Source: 812 50.000 Actualidad Source Exhibit 86 31.800 5200 F Spending Variance 1300-$12,000 Ahad Source 10.500 $1500U Volume Variance 50.000 - $10.500 $13000 Fixed Overhead Variance $200 and $45000 STUSOD - $10.500 P6 Prepare journal entries for standard costs and account for once and quantity varunces Standard Cost Accounting System Most standard cost systems record standard costs and variances in account. The entries in this section briefly illustrate key aspects of this process for G-Max standard couts and variances for May Direct Materials The first entry records standard direct materials cost of $35.000 in the Work in Pro cess Inventory account. This entry credits Raw Materials Inventory for the actual cost of direct materials used of $37.800. The difference between standard and actual direct materials costs is recorded with debits to two separate direct materials variance accounts (recall Exhibit 8.10). Both direct materials price and quantity variances are recorded as debits because they reflect additional costs uigher than the standard cost (if actual costs are less than the standard, they are recorded as credits) May 31 Work in Procesory standart 35,000 Direct Materials Price Variance 1,800 Direct Materialen Variance 1,000 Raw Materials actes cos 37.000 Record et moderne "May moderne terbaru or both the top Direct Labor The second entry increases Work in Process Inventory for the standard direct labor cost of 556,000. Actual direct labor cost of $56.100 is credited to Factory Wages Payable. The difference between standard and actual labor costs is explained by two variances (see Exhibit 8.11). The direct laborate vari ance is unfavorable and is debited. The direct labor efficiency variance in favorable and is credited. The direct labore efficiency variance is favorable because it represents a lower cost. May 31 56.000 1,700 Work in Prace Inventory standard Cou Direct Labor Rate Variance Direct Labor Efficiency Variance Factory Wages Payable actual cost Record director costs and wines 1.600 55.100 Overhead The entry to record standard overhead is to debit $17.500 to Work in Process Inventory Actual overhead costs of S18.150 were debited to Factory Overhead during the period (entries not shown here). Crediting Factory Overhead for $18.150 reduces its balance to zero. To account for the difference between actual and standard overhead costs, the entry includes an SR50 credit to the Controllable Variance account and a $1.500 debit to the Volume Variance account 305 Chapter 8 Flexible Budgets and Standard Costs May 21 17.500 1,500 Work in Process Inventory standard cost... Volume Variance. Controllable Variance Factory Overhead Apply overhead at standard rate of $10 per stondo direct later hour /1,750 hours and record Overhead vorences 850 18.150 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 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 onder costing chapter for eliminating an underapplied or overapplied balance in the Factory Overhead account. Standard Costing Income Statement in addition to budget reports, management can use a standard costing income statement to summarize company performance for a period. A standard costing income statement reports sales and cost of goods sold at their standard amounts, and then lists individual sales and cost variances to compute gross profitat actual cost. Unfavorable cost variances are added to cost of goods sold at standard cost, favorable cost variances are subtracted from cost of goods sold at standard cost NEED TO KNOW 8-7 Part A Expanded Overhead Variances PS Part A: Refer to the information in Need to Know 8-6 to answer the requirements Required 1. Compute the variable overhead spending variance and the variable overhead efficiency variance. 2. Compute the fixed overhead spending variance and the fixed overhead volume variance. Solution 1. Variable overhead indirect materias and Actoriable overhead ($9.00 +5.2001 $26.190 Budgeted beloved DLH 6.700 DLX S6 VOH une per 16.200 Standard variable Overdele 27.000X025 DL perunt 36 VOH ate per DLH Spending and ency variances dos formule in SA Achill Varie Chad ted Naattutan Turtled Santari varali orattal Arplai $26,100 5.200 520250 DOU $4,050F Spending Variance Ency Variance $26.90 - 1.200 56200-520250 55.6400 Variable Overhead Vence $9.990 and $4050F $26.490-520250 $47.500 47.500 51.100 2. Fued everted to an och A fed ved Budgeted fred over Standard fixed overhead oled 127.000 0 D per $15.20 FONDU Spending and wolume wrancesed on fosse A Actual Tourer atdhed Cherad Applied the $47.500 47.500 $50300 50 $3.000F Spending Variance Volume Variance 147.500.542.500 147500 - 3500 $3,800 Faed Overhead Variance 50 and $3.800F 347.500 - 15000 ww can also com Controllable variance 55. Udbom spending ancestorance Volume variance 3 800 Feed bowe 306 Chapter 8 Flexible Budgets and Standard Costs Part B: Prepare journal entries to record direct materials, direct labor, and overhead variances under standard costing Part B: Recording Variances under Standard Costing P6 Overhead Direct Labor Direct Materials Actual cost $71.200 Standard cost 75,700 Quantity variance 3,800 F Price variance 1,300 U Acost... Standard cost Efficiency variance Rate variance $38.000 40.000 1.000 3.000 F Arus cost Standard cost Volume variance Controllable and 560,000 540000 1.500F 2.500 F Solution 64.000 75,700 1.300 Work in Process Inventory...... Direct Materials Price Variance Direct Materials Quantity Variance Raw Materials inventory Record direct material and variances Work in Process ventory Volume Variance Controlable Variance Factory Overhead Record overhead vononces 1.500 2.500 50.000 3,800 73,200 40.000 1.000 Work in Process Inventory Direct Labor Miciency Variance Direct Labor Rate Viviance Factory Wages Payable Record direct obor and voice 3,000 38.000 Do More OS 8-18. E 8-14 Summary: Cheat Sheet FIXED AND FLEXIBLE BUDGETS Fixed budget: Based on a single activity level Flexible budget: Based on several activity levels, Variance: Difference between budgeted and actual amounts is Favocable -- Leads to higher income. Uefonorable -- Leads to lower income. STANDARD COSTING Standard cast: Preset cost for a product or service Management by exception: When managers focus on significant differences between actual costs and standard costs Total de Teoria per una Direct Director Duet Total STANDARD COST CARD Standard Quantity Standard Price Standard Cont er Hours per 2.2 pounde $10 per pod 522 2.0 DIN $15 30 20 OLM SSDLH NO PC Cest variance: Acost Sundt- Price variance (40 x P Q = 5 Quantity variances (NOX SP-SQ SP NOAP 50 e Peter BER 64.000 00