Prepare journal entries

to record standard
costs and variances.

Standard Cost Journal Entries

Variances recorded in accounting system

Favorable variances

Unfavorable variances

Credits
Represent savings in production costs
Debits
Represent excess production costs

Inventories are recorded at standard cost

during the period

Purchase of Materials
(Point of Purchase Method)

At
Standard
Cost
Materials
SP x AQ
purchased

Materials
Price
Variance
U

Accts Pay

Debit - Unfavorable
Credit - Favorable

AP x AQ
purchased

Use of Materials
At
Standard
Cost
WIP
SP x SQ
allowed

Materials
Quantity
Variance
U

Materials

Debit - Unfavorable
Credit - Favorable

SP x AQ
used

Recording
Material
Variances
Recording Material Variances

Recording Labor Variances

Record Labor
At
Standard
Cost

Labor Rate
Variance
WIP

Labor
Efficiency
Variance
U

Wages Pay
AP x AQ

SP x SQ
allowed
Debit - Unfavorable
Credit - Favorable

Recording Labor Variances

Recording Labor Variances
GENERAL JOURNAL
Date

Description
Work in Process

Post.
Ref.

Page 4
Debit
24,000

Labor Rate Variance

1,250

Labor Efficiency variance

1,000

Wages Payable
To record direct labor

Credit

26,250

Apply Overhead
Throughout the Year
WIP
SP x SQ
Allowed

VOH
SP x SQ
Allowed

FOH
SP x SQ
Allowed

Year-End Treatment for VOH

VOH
Efficiency
Variance

VOH
Spending
Variance

VOH
Actual Applied
---------------

Debit - Unfavorable
Credit - Favorable

Enter a debit
or credit to
bring balance
to zero

Year-End Treatment for FOH

FOH
Spending
Variance

Volume
Variance

FOH
Actual Applied
-------------

Debit - Unfavorable
Credit - Favorable

Enter a debit
or credit to
bring balance
to zero

Year-End Treatment of Variances

Immaterial - Adjust Cost of Goods Sold
Material - Prorate variances to
All other variances
Material Price Variance
WIP
Raw Materials
Finished Goods
WIP
Cost of Goods Sold
Finished Goods
Cost of Goods Sold
All variances other than Material Price Variance occur as part of the
conversion process. Since conversion includes raw materials put into
production rather than raw materials purchased, all remaining variances are
prorated only to Work in Process, Finished Goods, and Cost of Goods Sold.