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Journal Entries to Record Variances Appendix 10B

10A-2

Learning Objective 5

(Appendix 10B)

Prepare journal entriesto record standard

costs and variances.

10A-3

Glacier Peak Outfitters ― RevisitedWe will use information from the Glacier Peak Outfitters

example presented earlier in the chapter to illustrate journalentries for standard cost variances. Recall the following:

Material

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

Labor

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

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

10A-4

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

Recording Materials Variances

10A-5

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

Recording Labor Variances

10A-6

Cost Flows in a Standard Cost System

Inventories are recorded at standard cost.

Variances are recorded as follows: Favorable variances are credits, representing

savings in production costs. Unfavorable variances are debits, representing

excess production costs.

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

Inventories are recorded at standard cost.

Variances are recorded as follows: Favorable variances are credits, representing

savings in production costs. Unfavorable variances are debits, representing

excess production costs.

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

10A-7

End of Appendix 10B