After studying this chapter you will be able to understand: Why use a standard cost system? Purchase of direct materials, use of direct materials, recording direct labor, recording applied overhead, recording actual overhead,. | TOPIC FOCUS ON STANDARD COSTING SYSTEMS WHY USE A STANDARD COST SYSTEM? Actual costs can fluctuate, resulting in difficult tracing of cost flow to physical goods flow Facilitates recognition of variances that may signal need for corrective action PURCHASE OF DIRECT MATERIALS Raw Materials Inventory XXX Debit to Raw Materials Inventory is based on actual quantity purchased at standard price Unfavorable Materials Price Variance XXX Favorable Materials Price Variance XXX Difference needed to balance the entry is recorded as the Direct Materials Price Variance Credit to Accounts Payable or Cash is based on the actual quantity at the actual price Accounts Payable or Cash XXX USE OF DIRECT MATERIALS Work in Process Inventory XXX Debit to Work in Process is based on standard quantity allowed for production at standard price Unfavorable Materials Quantity Variance XXX Favorable Materials Quantity Variance XXX Difference needed to balance the entry is recorded as the Direct Materials Quantity | TOPIC FOCUS ON STANDARD COSTING SYSTEMS WHY USE A STANDARD COST SYSTEM? Actual costs can fluctuate, resulting in difficult tracing of cost flow to physical goods flow Facilitates recognition of variances that may signal need for corrective action PURCHASE OF DIRECT MATERIALS Raw Materials Inventory XXX Debit to Raw Materials Inventory is based on actual quantity purchased at standard price Unfavorable Materials Price Variance XXX Favorable Materials Price Variance XXX Difference needed to balance the entry is recorded as the Direct Materials Price Variance Credit to Accounts Payable or Cash is based on the actual quantity at the actual price Accounts Payable or Cash XXX USE OF DIRECT MATERIALS Work in Process Inventory XXX Debit to Work in Process is based on standard quantity allowed for production at standard price Unfavorable Materials Quantity Variance XXX Favorable Materials Quantity Variance XXX Difference needed to balance the entry is recorded as the Direct Materials Quantity Variance Credit to Raw Materials Inventory is based on the actual quantity issued to the factory floor at the standard price Raw Materials Inventory XXX RECORDING DIRECT LABOR Work in Process Inventory XXX Debit to Work in Process is based on standard quantity of labor allowed for production at standard wage rate Unfavorable Labor Rate Variance XXX Unfavorable Labor Efficiency Variance XXX Favorable Labor Rate Variance XXX Favorable Labor Efficiency Variance XXX Direct Labor Efficiency Variance and Direct Labor Rate Variance are recorded to balance the journal entry Credit to Wages Payable or Cash is based on the actual quantity of direct labor used at the actual wage rate Wages Payable or Cash XXX RECORDING APPLIED OVERHEAD Work in Process Inventory XXX Debit to Work in Process is the applied overhead (using standard application base allowed at predetermined variable overhead rate) Credit the same amount to Manufacturing Overhead Wages Payable or Cash XXX RECORDING ACTUAL OVERHEAD .
