Kế toán, kiểm toán - Chapter 11: Standard costs and operating performance measures

Standard Costs and Operating Performance MeasuresChapter 11Standard CostsStandards are benchmarks or “norms” formeasuring performance. In managerial accounting,two types of standards are commonly used.Quantity standardsspecify how much of aninput should be used tomake a product orprovide a service.Price standardsspecify how muchshould be paid foreach unit of theinput.Examples: Firestone, Sears, McDonald’s, hospitals, construction and manufacturing companies.Standard CostsDirectMaterialDeviations from standards deemed significantare brought to the attention of management, apractice known as management by exception.Type of Product CostAmountDirectLaborManufacturingOverheadStandardVariance Analysis CyclePrepare standard cost performance reportAnalyze variancesBeginIdentifyquestionsReceive explanationsTakecorrective actionsConduct next period’s operations Accountants, engineers, purchasingagents, and production managerscombine efforts to set standards that encourage efficient future operations.Setting Standard CostsSetting Standard CostsShould we useideal standards that require employees towork at 100 percent peak efficiency?EngineerManagerial Accountant I recommend using practical standards that are currently attainable with reasonable and efficient effort.Learning Objective 1Explain how direct materials standards and direct laborstandards are set.Setting Direct Material Standards PriceStandardsSummarized in a Bill of Materials.Final, deliveredcost of materials,net of discounts.QuantityStandardsSetting StandardsSix Sigma advocates have sought toeliminate all defects and waste, rather than continually build them into standards. As a result allowances for waste andspoilage that are built into standardsshould be reduced over time.Setting Direct Labor Standards RateStandardsOften a singlerate is used that reflectsthe mix of wages earned.TimeStandardsUse time and motion studies foreach labor operation.Setting Variable Manufacturing Overhead Standards RateStandardsThe rate is the variable portion of the predetermined overhead rate.QuantityStandardsThe quantity is the activity in the allocation base for predetermined overhead.Standard Cost Card – Variable Production Cost A standard cost card for one unit of product might look like this:Price and Quantity StandardsPrice 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. A General Model for Variance AnalysisVariance AnalysisPrice VarianceDifference betweenactual price and standard priceQuantity VarianceDifference betweenactual quantity andstandard quantityVariance AnalysisMaterials price varianceLabor rate varianceVOH rate varianceMaterials quantity varianceLabor efficiency varianceVOH efficiency varianceA General Model for Variance AnalysisPrice VarianceQuantity VariancePrice VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceA General Model for Variance AnalysisPrice VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceA General Model for Variance AnalysisActual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used.Price VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceA General Model for Variance Analysis Standard quantity is the standard quantity allowed for the actual output of the period.Price VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceA General Model for Variance Analysis Actual price is the amount actuallypaid for the input used.A General Model for Variance Analysis Standard price is the amount that should have been paid for the input used.Price VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceA General Model for Variance Analysis (AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Price VarianceQuantity Variance Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceLearning Objective 2Compute the direct materials price and quantity variances and explain their significance. 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 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 favorableQuantity variance$50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceMaterial Variances Summary 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 favorableQuantity variance$50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard Price$1,029  210 kgs = $4.90 per kgMaterial Variances Summary 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 favorableQuantity variance$50 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard Price0.1 kg per parka  2,000 parkas = 200 kgsMaterial Variances SummaryMaterial Variances:Using the Factored EquationsMaterials price varianceMPV = AQ (AP - SP) = 210 kgs ($4.90/kg - $5.00/kg) = 210 kgs (-$0.10/kg) = $21 FMaterials quantity varianceMQV = 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 UIsolation of Material VariancesI need the price variancesooner so that I can betteridentify purchasing problems.You accountants just don’tunderstand the problems thatpurchasing managers have.I’ll start computingthe price variancewhen material ispurchased rather than when it’s used.Material VariancesHanson 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.Materials Price VarianceMaterials Quantity VarianceProduction ManagerPurchasing ManagerThe standard price is used to compute the quantity varianceso that the production manager is not held responsible forthe purchasing manager’s performance.Responsibility for Material VariancesI am not responsible for this unfavorable materialquantity variance. You purchased cheapmaterial, so my peoplehad to use more of it.Your poor scheduling sometimes requires me to rush order material at a higher price, causing unfavorable price variances. Responsibility for Material Variances 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. ZippyQuick Check Quick Check Zippy Hanson’s material price variance (MPV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. Hanson’s material price variance (MPV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MPV = AQ(AP - SP) MPV = 1,700 lbs. × ($3.90 - 4.00) MPV = $170 FavorableQuick Check ZippyQuick Check  Hanson’s material quantity variance (MQV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable.Zippy Hanson’s material quantity variance (MQV)for the week was: a. $170 unfavorable. b. $170 favorable. c. $800 unfavorable. d. $800 favorable. MQV = SP(AQ - SQ) MQV = $4.00(1,700 lbs - 1,500 lbs) MQV = $800 unfavorableQuick Check Zippy 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 Price variance$170 favorableQuantity variance$800 unfavorable Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PriceZippyQuick Check  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. ZippyQuick Check  Continued 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$280 favorable Price variance increases because quantity purchased increases.ZippyQuick Check  Continued 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$800 unfavorableQuantity variance is unchanged because actual and standard quantities are unchanged.ZippyQuick Check  ContinuedLearning Objective 3Compute the direct labor rate and efficiency variances and explaintheir significance. 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 ExampleRate variance$1,250 unfavorableEfficiency variance$1,000 unfavorable Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateLabor Variances Summary 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 Labor Variances Summary 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 Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate$26,250  2,500 hours = $10.50 per hourRate variance$1,250 unfavorableEfficiency variance$1,000 unfavorableLabor Variances Summary 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 Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate1.2 hours per parka  2,000 parkas = 2,400 hoursRate variance$1,250 unfavorableEfficiency variance$1,000 unfavorableLabor Variances:Using the Factored EquationsLabor rate varianceLRV = AH (AR - SR) = 2,500 hours ($10.50 per hour – $10.00 per hour) = 2,500 hours ($0.50 per hour) = $1,250 unfavorableLabor efficiency varianceLEV = SR (AH - SH) = $10.00 per hour (2,500 hours – 2,400 hours) = $10.00 per hour (100 hours) = $1,000 unfavorableResponsibility for Labor VariancesProduction ManagerProduction managers areusually held accountablefor labor variancesbecause they caninfluence the:Mix of skill levelsassigned to work tasks. Level of employee motivation.Quality of production supervision.Quality of training provided to employees.I am not responsible for the unfavorable laborefficiency variance! You purchased cheapmaterial, so it took moretime 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 Hanson Inc. has the following direct laborstandard to manufacture one Zippy: 1.5 standard hours per Zippy at$12.00 per direct labor hour Last week, 1,550 direct labor hours wereworked at a total labor cost of $18,910to make 1,000 Zippies. ZippyQuick Check  Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.Quick Check Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable.Quick Check  LRV = AH(AR - SR) LRV = 1,550 hrs($12.20 - $12.00) LRV = $310 unfavorableZippy Hanson’s labor efficiency variance (LEV)for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable.Quick Check Zippy Hanson’s labor efficiency variance (LEV)for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable.Quick Check  LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorableZippy Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateRate variance$310 unfavorableEfficiency 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 ZippyQuick Check Learning Objective 4Compute the variable manufacturing overhead rate and efficiency variances. 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 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance$500 unfavorableEfficiency variance$400 unfavorable Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateVariable Manufacturing Overhead Variances Summary Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance$500 unfavorableEfficiency variance$400 unfavorable$10,500  2,500 hours = $4.20 per hourVariable Manufacturing Overhead Variances Summary Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate 2,500 hours 2,500 hours 2,400 hours × × × $4.20 per hour $4.00 per hour $4.00 per hour = $10,500 = $10,000 = $9,600 Rate variance$500 unfavorableEfficiency variance$400 unfavorable1.2 hours per parka  2,000 parkas = 2,400 hoursVariable Manufacturing Overhead Variances SummaryVariable Manufacturing Overhead Variances: Using Factored EquationsVariable manufacturing overhead rate varianceVMRV = AH (AR - SR) = 2,500 hours ($4.20 per hour – $4.00 per hour) = 2,500 hours ($0.20 per hour) = $500 unfavorableVariable manufacturing overhead efficiency varianceVMEV = SR (AH - SH) = $4.00 per hour (2,500 hours – 2,400 hours) = $4.00 per hour (100 hours) = $400 unfavorable Hanson Inc. has the following variablemanufacturing overhead standard tomanufacture one Zippy: 1.5 standard hours per Zippy at$3.00 per direct labor hour Last week, 1,550 hours were worked to make1,000 Zippies, and $5,115 was spent forvariable manufacturing overhead.ZippyQuick Check  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.Quick Check Zippy 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.Quick Check  VMRV = AH(AR - SR) VMRV = 1,550 hrs($3.30 - $3.00) VMRV = $465 unfavorableZippy 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.Quick Check Zippy 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.Quick Check  VMEV = SR(AH - SH) VMEV = $3.00(1,550 hrs - 1,500 hrs) VMEV = $150 unfavorable1,000 units × 1.5 hrs per unitZippyRate variance$465 unfavorableEfficiency variance$150 unfavorable 1,550 hours 1,550 hours 1,500 hours × × × $3.30 per hour $3.00 per hour $3.00 per hour = $5,115 = $4,650 = $4,500 Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard RateZippyQuick Check Variance Analysis and Management by ExceptionHow do I knowwhich variances to investigate? Larger variances, in dollar amount or as a percentage of the standard, are investigated first. A Statistical Control Chart123456789Variance MeasurementsFavorable Limit Unfavorable Limit •••••••••Warning signals for investigationDesired Value Advantages of Standard CostsManagement byexceptionAdvantagesPromotes economy and efficiencySimplifiedbookkeepingEnhances responsibilityaccountingPotentialProblemsEmphasis onnegative mayimpact morale.Emphasizing standardsmay exclude otherimportant objectives.Favorablevariances maybe misinterpreted.Continuous improvement maybe more importantthan meeting standards.Standard costreports maynot be timely.Invalid assumptionsabout the relationshipbetween laborcost and output.Potential Problems with Standard CostsLearning Objective 5Compute delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE).Process time is the only value-added time.Delivery Performance MeasuresWait TimeProcess Time + Inspection Time+ Move Time + Queue TimeDelivery Cycle Time Order ReceivedProductionStartedGoods ShippedThroughput TimeManufacturingCycleEfficiency Value-added timeManufacturing cycle time=Wait TimeProcess Time + Inspection Time+ Move Time + Queue TimeDelivery Cycle Time Order ReceivedProductionStartedGoods ShippedThroughput TimeDelivery Performance MeasuresQuick Check A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 daysWhat is the throughput time? a. 10.4 days.b. 0.2 days.c. 4.1 days.d. 13.4 days.A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 daysWhat is the throughput time? a. 10.4 days.b. 0.2 days.c. 4.1 days.d. 13.4 days.Quick Check Throughput time = Process + Inspection + Move + Queue = 0.2 days + 0.4 days + 0.5 days + 9.3 days = 10.4 daysQuick Check A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 daysWhat is the Manufacturing Cycle Efficiency (MCE)? a. 50.0%.b. 1.9%.c. 52.0%.d. 5.1%.A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 daysWhat is the Manufacturing Cycle Efficiency (MCE)? a. 50.0%.b. 1.9%.c. 52.0%.d. 5.1%.Quick Check MCE = Value-added time ÷ Throughput time = Process time ÷ Throughput time = 0.2 days ÷ 10.4 days = 1.9%Quick Check A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 daysWhat is the delivery cycle time (DCT)? a. 0.5 days.b. 0.7 days.c. 13.4 days.d. 10.4 days.A TQM team at Narton Corp has recorded the following average times for production: Wait 3.0 days Move 0.5 days Inspection 0.4 days Queue 9.3 days Process 0.2 daysWhat is the delivery cycle time (DCT)? a. 0.5 days.b. 0.7 days.c. 13.4 days.d. 10.4 days.Quick Check  DCT = Wait time + Throughput time = 3.0 days + 10.4 days = 13.4 daysPredetermined Overhead Rates and Overhead Analysis in a Standard Costing SystemAppendix 11ALearning Objective 6(Appendix 11A)Compute and interpret the fixed overhead budget and volume variances.Budget varianceFixed Overhead Budget VarianceActualFixedOverheadFixedOverheadAppliedBudgetedFixedOverheadBudgetvarianceBudgetedfixedoverheadActualfixedoverhead=–VolumevarianceFixed Overhead Volume VarianceActualFixedOverheadFixedOverheadAppliedBudgetedFixedOverheadVolumevarianceFixedoverheadapplied towork in processBudgetedfixedoverhead=–FPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual output SH × FRDH × FRFixed Overhead Volume VarianceActualFixedOverheadFixedOverheadAppliedBudgetedFixedOverheadVolume varianceFPOHR × (DH – SH)=VolumevarianceComputing Fixed Overhead VariancesComputing Fixed Overhead VariancesPredetermined Overhead RatesPredetermined overhead rateEstimated total manufacturing overhead costEstimated total amount of the allocation base=Predetermined overhead rate$360,00090,000 Machine-hours=Predetermined overhead rate= $4.00 per machine-hourPredetermined Overhead RatesVariable component of thepredetermined overhead rate$90,00090,000 Machine-hours=Variable component of thepredetermined overhead rate= $1.00 per machine-hourFixed component of thepredetermined overhead rate$270,00090,000 Machine-hours=Fixed component of thepredetermined overhead rate= $3.00 per machine-hourApplying Manufacturing OverheadOverheadappliedPredetermined overhead rateStandard hours allowedfor the actual output=×Overheadapplied$4.00 permachine-hour84,000 machine-hours=×Overheadapplied$336,000=Computing the Budget VarianceBudgetvarianceBudgetedfixedoverheadActualfixedoverhead=–Budgetvariance= $280,000 – $270,000Budgetvariance= $10,000 UnfavorableComputing the Volume VarianceVolumevarianceFixedoverheadapplied towork in processBudgetedfixedoverhead=–Volumevariance= $18,000 UnfavorableVolumevariance= $270,000 –$3.00 permachine-hour(×$84,000machine-hours)Computing the Volume VarianceFPOHR = Fixed portion of the predetermined overhead rate DH = Denominator hours SH = Standard hours allowed for actual outputVolume varianceFPOHR × (DH – SH)=Volumevariance=$3.00 permachine-hour(×90,000mach-hours–84,000mach-hours)Volumevariance= 18,000 UnfavorableA Pictorial View of the VariancesActualFixedOverheadFixed OverheadApplied toWork in Process BudgetedFixedOverhead 252,000270,000280,000Total variance, $28,000 unfavorableBudget variance,$10,000 unfavorableVolume variance,$18,000 unfavorableFixed 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. Graphic Analysis of FixedOverhead VariancesMachine-hours (000) Budget$270,00090Denominatorhours00Fixed overhead applied at$3.00 per standard hourGraphic Analysis of FixedOverhead VariancesActual$280,000Machine-hours (000) Budget$270,00090Denominatorhours00Fixed overhead applied at$3.00 per standard hourBudget Variance 10,000 U{Actual$280,000Applied$252,000Machine-hours (000) Budget$270,000Graphic Analysis of FixedOverhead Variances908400StandardhoursFixed overhead applied at$3.00 per standard hourDenominatorhoursBudget Variance 10,000 UVolume Variance 18,000 U{{Reconciling Overhead Variances and Underapplied or Overapplied OverheadIn a standardcost system:Unfavorablevariances are equivalentto underapplied overhead.Favorablevariances are equivalentto overapplied overhead.The sum of the overhead variancesequals the under- or overappliedoverhead cost for the period.Reconciling Overhead Variances and Underapplied or Overapplied OverheadComputing the Variable Overhead VariancesVariable manufacturing overhead rate varianceVMRV = (AH × AR) – (AH × SR) = $100,000 – (88,000 hours × $1.00 per hour) = $12,000 unfavorableComputing the Variable Overhead VariancesVariable manufacturing overhead efficiency varianceVMEV = (AH × SR) – (SH × SR) = $88,000 – (84,000 hours × $1.00 per hour) = $4,000 unfavorableComputing the Sum of All VariancesJournal Entriesto Record VariancesAppendix 11BLearning Objective 7(Appendix 11B)Prepare journal entriesto record standardcosts and variances. Appendix 11BJournal Entries to Record VariancesWe will use information from the Glacier Peak Outfittersexample presented earlier in the chapter to illustrate journalentries for standard cost variances. Recall the following:MaterialAQ × AP = $1,029AQ × SP = $1,050SQ × SP = $1,000MPV = $21 FMQV = $50 ULaborAH × 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.Appendix 11BRecording Material VariancesAppendix 11BRecording Labor Variances Cost Flows in a Standard Cost SystemInventories 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.End of Chapter 11