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© 2015 McGraw-‐Hill Educa4on Garrison, Noreen, Brewer, Cheng & Yuen

Standard Costs and Variances

Chapter 12


Standard Costs

Standards are benchmarks or “norms” for measuring performance. In managerial accounting,

two types of standards are commonly used.

Quantity standards specify how much of an input should be used to

make a product or provide a service.

Price standards specify how much should be paid for each unit of the

input.

Examples: Firestone, Sears, McDonald’s, hospitals, construction and manufacturing companies.

2


Setting Direct Material Standards

Price Standards

Final, delivered cost of materials, net of discounts.

Summarized in a Bill of Materials.

Quantity Standards

3


Setting Direct Labor Standards

Rate Standards

Often a single rate is used that reflects the mix of wages earned.

Time Standards

Use time and motion studies for

each labor operation.

4


Setting Variable Manufacturing Overhead Standards

Rate Standards

The rate is the variable portion of the

predetermined overhead rate.

Quantity Standards

The quantity is the activity in the

allocation base for predetermined overhead.

5


Standard Cost Card – Variable Production Cost

A standard cost card for one unit of product might look like this:

A A x BStandard Standard StandardQuantity Price Cost

Inputs or Hours or Rate per Unit

Direct materials 3.0 lbs. 4.00$ per lb. 12.00$ Direct labor 2.5 hours 14.00 per hour 35.00 Variable mfg. overhead 2.5 hours 3.00 per hour 7.50 Total standard unit cost 54.50$

B

6


Using Standards in Flexible Budgets

Standard costs per unit for direct materials, direct labor, and variable manufacturing overhead can be used to

compute activity and spending variances.

Spending variances become more useful by breaking them down into

price and quantity variances.

7


A General Model for Variance Analysis

Variance Analysis

Price Variance

Difference between actual price and standard price

Quantity Variance

Difference between actual quantity and standard quantity

8


Price and Quantity Standards

Price and quantity standards are determined separately for two reasons:

�  The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used.

�  The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production.

9


Variance Analysis

Materials price variance Labor rate variance VOH rate variance

Materials quantity variance Labor efficiency variance VOH efficiency variance


Price Variance Quantity Variance

10



Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price


11





Actual quantity is the amount of direct materials, direct labor, and variable

manufacturing overhead actually used.

12





Standard quantity is the standard quantity allowed for the actual output of the period.

13





Actual price is the amount actually paid for the input used.

14



Standard price is the amount that should have been paid for the input used.



15



(AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP)

AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity



16


Another Way to Look at the Problems: The line-by-line method

Actual Quantity x Actual Price = AQ x APPrice variance

Actual Quantity x Standard Price = AQ x SPQuantity variance

Standard Quantity x Standard Price = SQ x SPTotal Variance

SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual output

17


Learning Objective 1

Compute the direct materials price and quantity variances and explain their

significance.

18


Glacier Peak Outfitters has the following direct material standard for the fiberfill in its mountain

parka.

0.1 kg. of fiberfill per parka at $5.00 per kg.

Last month 210 kgs. of fiberfill were purchased and used to make 2,000 parkas. The material cost a

total of $1,029.

Material Variances – An Example

19


Material Variances: The line-by-line method

AQ x AP = 210 x AP = 1,029(21) F Price variance

AQ x SP = 210 x 5 = 1,05050 U Quantity variance

SQ x SP = (2000 x 0.1) x 5 = 1,00029 U Total Variance


Calculation of Actual Purchase Price (AP) per unit can be done but is not necessary because AP will not be used in subsequent calculations and the total actual purchase cost in total is sufficient for the variance calculation.

20


210 kgs. 210 kgs. 200 kgs. × × × $4.90 per kg. $5.00 per kg. $5.00 per kg.

= $1,029 = $1,050 = $1,000

Price variance $21 favorable

Quantity variance $50 unfavorable


Material Variances Summary: The tradition method

21



= $1,029 = $1,050 = $1,000




$1,029 ÷ 210 kgs = $4.90 per kg


22



= $1,029 = $1,050 = $1,000




0.1 kg per parka × 2,000 parkas = 200 kgs


23


Material Variances: Using the Factored Equations

Materials price variance MPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 F

Materials quantity variance MQV = SP (AQ - SQ) = $5.00/kg (210 kgs-(0.1 kg/parka × 2,000 parkas)) = $5.00/kg (210 kgs - 200 kgs) = $5.00/kg (10 kgs) = $50 U

24


Isolation of Material Variances I need the price variance

sooner so that I can better identify purchasing problems.

You accountants just don’t understand the problems that purchasing managers have.

I’ll start computing the price variance when material is purchased rather

than when it’s used.

25


Material Variances

Hanson purchased and used 1,700 pounds.

How are the variances computed if the amount purchased differs from

the amount used?

The price variance is computed on the entire

quantity purchased. The quantity variance is computed only on

the quantity used.

26


Materials Quantity Variance

Production Manager

Materials Price Variance

Purchasing Manager

The standard price is used to compute the quantity variance so that the production manager is not held responsible for

the purchasing manager’s performance.

Responsibility for Material Variances

27


Your poor scheduling sometimes requires me to

rush order material at a higher price, causing

unfavorable price variances.

I am not responsible for this unfavorable material

quantity variance. You purchased cheap material, so my people had to use more of it.

Responsibility for Material Variances

28


Hanson Inc. has the following direct material standard to manufacture one Zippy:

1.5 pounds per Zippy at $4.00 per pound

Last week, 1,700 pounds of material were purchased and used to make 1,000 Zippies. The

material cost a total of $6,630.

Zippy Quick Check ü

29


Quick Check ü Zippy

Hanson’s material price variance (MPV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.

30


Quick Check ü

Hanson’s material quantity variance (MQV) for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.

Zippy

31


Quick Check ü Summary: The line-by-line method

AQ x AP = 1,700 x AP = 6,630(170) F Price variance

AQ x SP = 1,700 x 4 = 6,800800 U Quantity variance

SQ x SP = (1000 x 1.5) x 4 = 6,000630 U Total Variance


Zippy

32


1,700 lbs. 1,700 lbs. 1,500 lbs. × × × $3.90 per lb. $4.00 per lb. $4.00 per lb.

= $6,630 = $ 6,800 = $6,000




Zippy Quick Check ü Summary: The traditional method

33


Hanson Inc. has the following material standard to manufacture one Zippy:

1.5 pounds per Zippy at $4.00 per pound

Last week, 2,800 pounds of material were purchased at a total cost of $10,920, and 1,700

pounds were used to make 1,000 Zippies.

Zippy Quick Check ü Continued

34


Quick Check ü Continued The line-by-line method

AQp x AP = 2,800 x AP = 10,920(280) F Price variance

AQp x SP = 2,800 x 4 = 11,2004,400 U Inventory @ Std cost

AQu x SP = 1,700 x 4 = 6,800800 U Usage variance

SQ x SP = (1000 x 1.5) x 4 = 6,000 (Quantity variance)4,920 U Total Variance

AQp = Actual Quantity PurchasedAQu = Actual Quantity usedSQ = (Aouput x standard quantity for production use) = standard quantity allowed for the actual output

Zippy

35


Actual Quantity Actual Quantity Purchased Purchased × × Actual Price Standard Price

2,800 lbs. 2,800 lbs. × × $3.90 per lb. $4.00 per lb.

= $10,920 = $11,200


Price variance increases because quantity

purchased increases.

Zippy Quick Check ü Continued The traditional method

36


Actual Quantity Used Standard Quantity × × Standard Price Standard Price

1,700 lbs. 1,500 lbs. × × $4.00 per lb. $4.00 per lb.

= $6,800 = $6,000


Quantity variance is unchanged because actual and standard

quantities are unchanged.

Zippy Quick Check ü Continued The traditional method

37



Compute the direct labor rate and efficiency variances

and explain their significance.

38


Glacier Peak Outfitters has the following direct labor standard for its mountain parka.

1.2 standard hours per parka at $10.00 per hour

Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000

parkas.

Labor Variances – An Example

39


Labor Variances

AH x AR = 2,500 x AR = 26,2501,250 U Rate variance

AH x SR = 2,500 x 10 = 25,0001,000 U Efficiency variance

SH x SR = (2000 x 1.2) x 10 = 24,0002,250 U Total Variance

AH = Actual hour paid (and worked in this case)AR = Actual rate per hourSR = Standard rate per hourSH = (Aouput x standard hours for the production) = standard hours allowed for the actual output

40


Rate variance $1,250 unfavorable

Efficiency variance $1,000 unfavorable

Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate

Labor Variances Summary: The Traditional Method

2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour

= $26,250 = $25,000 = $24,000

41


Labor Variances Summary


= $26,250 = $25,000 = $24,000


$26,250 ÷ 2,500 hours = $10.50 per hour



42


Labor Variances Summary


= $26,250 = $25,000 = $24,000


1.2 hours per parka × 2,000 parkas = 2,400 hours



43


Labor Variances: Using the Factored Equations

Labor rate variance LRV = AH (AR - SR) = 2,500 hours ($10.50 per hour – $10.00 per hour) = 2,500 hours ($0.50 per hour) = $1,250 unfavorable

Labor efficiency variance LEV = SR (AH - SH) = $10.00 per hour (2,500 hours – 2,400 hours) = $10.00 per hour (100 hours) = $1,000 unfavorable

44


Responsibility for Labor Variances

Production Manager

Production managers are usually held accountable

for labor variances because they can

influence the:

Mix of skill levels assigned to work tasks.

Level of employee motivation.

Quality of production supervision.

Quality of training provided to employees.

45


I am not responsible for the unfavorable labor

efficiency variance! You purchased cheap

material, so it took more time to process it.

I think it took more time to process the

materials because the Maintenance

Department has poorly maintained your

equipment.

Responsibility for Labor Variances

46


Hanson Inc. has the following direct labor standard to manufacture one Zippy:

1.5 standard hours per Zippy at $12.00 per direct labor hour

Last week, 1,550 direct labor hours were worked at a total labor cost of $18,910

to make 1,000 Zippies.


47


Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.


48


Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable.


49


Quick Check ü: Summary of the line-by-line method

AH x AR = 1,550 x AR = 18,910310 U Rate variance

AH x SR = 1,550 x 12 = 18,600600 U Efficiency variance

SH x SR = (1000 x 1.5) x 12 = 18,000910 U Total Variance


50



Rate variance $310 unfavorable

Efficiency variance $600 unfavorable

1,550 hours 1,550 hours 1,500 hours × × × $12.20 per hour $12.00 per hour $12.00 per hour

= $18,910 = $18,600 = $18,000

Zippy

Quick Check ü: Summary of the traditional method

51



Compute the variable manufacturing overhead rate

and efficiency variances.

52


Glacier Peak Outfitters has the following direct variable manufacturing overhead labor standard for its mountain

parka.

1.2 standard hours per parka at $4.00 per hour

Last month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing

overhead for the month was $10,500.

Variable Manufacturing Overhead Variances – An Example

53


Variable Manufacturing Overhead Variances: The line-by-line method





54



= $10,500 = $10,000 = $9,600




Variable Manufacturing Overhead Variances Summary: The traditional method

55




= $10,500 = $10,000 = $9,600



$10,500 ÷ 2,500 hours = $4.20 per hour


56




= $10,500 = $10,000 = $9,600



1.2 hours per parka × 2,000 parkas = 2,400 hours


57


Variable Manufacturing Overhead Variances: Using Factored Equations

Variable manufacturing overhead rate variance VMRV = AH (AR - SR) = 2,500 hours ($4.20 per hour – $4.00 per hour) = 2,500 hours ($0.20 per hour) = $500 unfavorable

Variable manufacturing overhead efficiency variance VMEV = SR (AH - SH) = $4.00 per hour (2,500 hours – 2,400 hours) = $4.00 per hour (100 hours) = $400 unfavorable

58


Hanson Inc. has the following variable manufacturing overhead standard to

manufacture one Zippy:

1.5 standard hours per Zippy at $3.00 per direct labor hour

Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for

variable manufacturing overhead.


59


Hanson’s rate variance (VMRV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable.


60


Hanson’s efficiency variance (VMEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable.


61


Quick Check ü Summary: The line-by-line method





62





= $5,115 = $4,650 = $4,500


Zippy Quick Check ü The traditional method

63


Variance Analysis and Management by Exception

How do I know which variances to

investigate?

Larger variances, in dollar amount or as a percentage of the

standard, are investigated first.

64


A Statistical Control Chart

1 2 3 4 5 6 7 8 9 Variance Measurements

Favorable Limit

Unfavorable Limit

• • • • • • • •

•

Warning signals for investigation

Desired Value

65


Advantages of Standard Costs

Management by exception

Advantages

Promotes economy and efficiency

Simplified bookkeeping

Enhances responsibility

accounting

66


Potential Problems

Emphasis on negative may

impact morale.

Emphasizing standards may exclude other

important objectives.

Favorable variances may

be misinterpreted.

Continuous improvement may be more important

than meeting standards.

Standard cost reports may

not be timely.

Invalid assumptions about the relationship

between labor cost and output.

Potential Problems with Standard Costs

67


Generalized Model of the Row by Row Approach and Its Preparation of the Performance Report

(Reconcile Actual Results to the Budgeted Figures)

Supplementary Note


Generalized Model of the Row by Row Approach and Its Preparation of the Performance Report (Reconcile Actual Results to the Budgeted Figures)

Actual Quantity x Actual Price = AQ x APPrice variance

Actual Quantity x Standard Price = AQ x SPQuantity variance

Standard Quantity x Standard Price = SQ x SPTotal Flexible VarianceActivity Variance

Budgeted Quantity x Standard Price = BQ x SPStatic variance

SQ = (Aouput x standard quantity for production) = standard quantity allowed for the actual outputBQ = Budgeted quantity

69


Performance Report for Variance Analysis: Recall Example from Chapter 11

Revenue andRevenue/Cost Planning Activity Flexible Spending Actual

Formulas Budget Variances Budget Variances Results

Number of lawns (Q) 500 550 550

Revenue ($75Q) 37,500$ 3,750$ F 41,250$ 1,750$ F 43,000$ Expenses:

Wages and salaries ($5,000 + $30Q) 20,000$ 1,500$ U 21,500$ 2,000$ U 23,500$ Gasoline and supplies ($9Q) 4,500 450 U 4,950 150 U 5,100 Equipment maintenance ($3Q) 1,500 150 U 1,650 350 F 1,300 Office and shop utilities ($1,000) 1,000 - 1,000 50 F 950 Office and shop rent ($2,000) 2,000 - 2,000 - 2,000 Equipment Depreciation ($2,500) 2,500 - 2,500 - 2,500 Insurance ($1,000) 1,000 - 1,000 200 U 1,200

Total expenses 32,500 2,100 U 34,600 1,950 U 36,550 Net operating income 5,000$ 1,650$ F 6,650$ 200$ U 6,450$

Larry's Lawn Service

For the Month Ended June 30Flexible Budget Performance Report

70


Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Appendix 12A



(Appendix 12A)

Compute and interpret the fixed overhead budget and

volume variances.

72


Fixed Manufacturing Overhead Variances: The line-by-line method

Actual Fixed OverheadBudget variance

Budgeted Fixed Overhead = BH x SR (Spending variance)

Volume varianceApplied Fixed Overhead = SH x SR

Total VarianceBH = Budgeted hours (a.k.a. Denominator hours)SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output

73


Budget variance

Fixed Overhead Budget Variance: The traditional method

Actual Fixed

Overhead

Fixed Overhead Applied

Budgeted Fixed

Overhead

Budget variance

Budgeted fixed

overhead

Actual fixed

overhead = –

74


Volume variance

Fixed Overhead Volume Variance: The traditional method

Actual Fixed

Overhead


Budgeted Fixed

Overhead

Volume variance

Fixed overhead applied to

work in process

Budgeted fixed

overhead = –

75


FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output

SH × FR DH × FR

Fixed Overhead Volume Variance: The traditional method

Actual Fixed

Overhead


Budgeted Fixed

Overhead

Volume variance FPOHR × (DH – SH) =

Volume variance

76


Computing Fixed Overhead Variances

Budgeted production 30,000 units Standard machine-hour per unit 3 hours Budgeted machine-hour 90,000 hours Actual production 28,000 units Standard machine-hour allowed for the actual production 84,000 hours Actual machine-hour 88,000 hours

Production and Machine-Hour DataColaCo

77


Computing Fixed Overhead Variances

Budgeted variable manufacturing overhead 90,000$ Budgeted fixed manufacturing overhead 270,000 Total budgeted manufacturing overhead 360,000$

Actual variable manufacturing overhead 100,000$ Actual fixed manufacturing overhead 280,000 Total actual manufacturing overhead 380,000$

ColaCoCost Data

78


Predetermined Overhead Rates

Predetermined overhead rate

Estimated total manufacturing overhead cost Estimated total amount of the allocation base =


$360,000 90,000 Machine-hour =

Predetermined overhead rate = $4.00 per machine-hour

79


Predetermined Overhead Rates

Variable component of the predetermined overhead rate

$90,000 90,000 Machine-hour =

Variable component of the predetermined overhead rate = $1.00 per machine-hour

Fixed component of the predetermined overhead rate

$270,000 90,000 Machine-hour =

Fixed component of the predetermined overhead rate = $3.00 per machine-hour

80


Applying Manufacturing Overhead

Overhead applied


Standard hours allowed for the actual output = ×

Overhead applied

$4.00 per machine-hour 84,000 machine-hour = ×

Overhead applied $336,000 =

81


Fixed Manufacturing Overhead Variances The line-by-line method

Actual = = 280,00010,000 U Budget variance

Budgeted = = 270,00018,000 U Volume variance

SH x SR = (28000 x 3) x 3 = 252,00028,000 U Total Underapplied overhead

SH = (Aouput x standard hours for the production) = standard hours allowed for the actual output

82


Computing the Budget Variance: The traditional method

Budget variance

Budgeted fixed

overhead

Actual fixed

overhead = –

Budget variance = $280,000 – $270,000

Budget variance = $10,000 Unfavorable

83


Computing the Volume Variance: The traditional method

Volume variance

Fixed overhead applied to

work in process

Budgeted fixed

overhead = –

Volume variance = $18,000 Unfavorable

Volume variance = $270,000 – $3.00 per

machine-hour ( × $84,000 machine-hour )

84


Computing the Volume Variance: The traditional method

FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output

Volume variance FPOHR × (DH – SH) =

Volume variance = $3.00 per

machine-hour ( × 90,000 machine-hour

– 84,000 machine-hour )

Volume variance = 18,000 Unfavorable

85


A Pictorial View of the Variances

Actual Fixed

Overhead

Fixed Overhead Applied to

Work in Process

Budgeted Fixed

Overhead 252,000 270,000 280,000

Total variance, $28,000 unfavorable

Budget variance, $10,000 unfavorable

Volume variance, $18,000 unfavorable

86


Fixed Overhead Variances – A Graphic Approach

Let’s look at a graph showing fixed overhead

variances. We will use ColaCo’s

numbers from the previous example.

87


Graphic Analysis of Fixed Overhead Variances

Machine-hours (000)

Budget $270,000

90

Denominator hours

0 0

88



Actual $280,000

Machine-hours (000)

Budget $270,000

90

Denominator hours

0 0

Budget Variance 10,000 U {

89


Actual $280,000

Applied $252,000

Machine-hours (000)

Budget $270,000


90 84 0 0

Standard hours

Denominator hours

Budget Variance 10,000 U

Volume Variance 18,000 U

{ {

90


Reconciling Overhead Variances and Underapplied or Overapplied Overhead

In a standard cost system:

Unfavorable variances are equivalent

to underapplied overhead.

Favorable variances are equivalent to overapplied overhead.

The sum of the overhead variances equals the under- or overapplied

overhead cost for the period. 91


Reconciling Overhead Variances and Underapplied or Overapplied Overhead

Predetermined overhead rate (a) 4.00$ per machine-hour Standard hours allowed for the actual output (b) 84,000 machine hours Manufacturing overhead applied (a) × (b) 336,000$ Actual manufacturing overhead 380,000$ Manufacturing overhead underapplied or overapplied 44,000$ underapplied

Computation of Underapplied OverheadColaCo

92


Variable Overhead Variances: The line-by-line method

AH x AR = = 100,00012,000 U Rate variance

AH x SR = 88,000 x 1 = 88,0004,000 U Efficiency variance

SH x SR = 84,000 x 1 = 84,000(= 28,000 x 3) 16,000 U Total Variance

SR = Standard rate per hour = Total underappliedSH = (Aouput x standard hours for the production) variable overhead = standard hours allowed for the actual output

93


Computing the Variable Overhead Variances: The factored equation method

Variable manufacturing overhead rate variance VMRV = (AH × AR) – (AH × SR) = $100,000 – (88,000 hours × $1.00 per hour) = $12,000 unfavorable

94


Computing the Variable Overhead Variances The traditional method

Variable manufacturing overhead efficiency variance VMEV = (AH × SR) – (SH × SR) = $88,000 – (84,000 hours × $1.00 per hour) = $4,000 unfavorable

95


Computing the Sum of All Variances

Variable overhead rate variance 12,000$ U Variable overhead efficiency variance 4,000 U Fixed overhead budget variance 10,000 U Fixed overhead volume variance 18,000 U Total of the overhead variances 44,000$ U

Computing the Sum of All variancesColaCo

96


Journal Entries to Record Variances Appendix 12B



(Appendix 12B)

Prepare journal entries to record standard costs and variances.

98


Appendix 12B Journal Entries to Record Variances

We will use information from the Glacier Peak Outfitters example presented earlier in the chapter to illustrate journal

entries for standard cost variances. Recall the following:

Material

AQ × AP = $1,029 AQ × SP = $1,050 SQ × SP = $1,000 MPV = $21 F MQV = $50 U

Labor

AH × AR = $26,250 AH × SR = $25,000 SH × SR = $24,000 LRV = $1,250 U LEV = $1,000 U

Now, let’s prepare the entries to record the labor and material variances.

99


GENERAL JOURNAL Page 4

Date DescriptionPost. Ref. Debit Credit

Raw Materials 1,050 Materials Price Variance 21 Accounts Payable 1,029

To record the purchase of material

Work in Process 1,000 Materials Quantity Variance 50 Raw Materials 1,050 To record the use of material

Appendix 12B Recording Material Variances

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GENERAL JOURNAL Page 4

Date DescriptionPost. Ref. Debit Credit

Work in Process 24,000 Labor Rate Variance 1,250 Labor Efficiency Variance 1,000

Wages Payable 26,250 To record direct labor

Appendix 12B Recording Labor Variances

101


Cost Flows in a Standard Cost System

Inventories are recorded at standard cost. Variances are recorded as follows:

w  Favorable variances are credits, representing savings in production costs.

w  Unfavorable variances are debits, representing excess production costs.

Standard cost variances are usually closed out to cost of goods sold. w  Unfavorable variances increase cost of goods sold. w  Favorable variances decrease cost of goods sold.

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End of Chapter 12

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