The X Company manufactures widgets. It has developed the following standards per finished unit for direct materials and direct labor: Direct materials: 5 lbs. at $5.00 per lb. Direct labor: 1 hour at $20.00 per hour Budgeted production in units: 20,000 units Actual production of finished units: 21,000 units Materials purchased: 120,000 lbs. at a total cost of $630,000. Materials price variance is recognized upon purchase. Direct materials used: 102,900 lbs. Direct labor used: 21,300 hours; actual cost $422,805. PREPARE JOURNAL ENTRY TO CLOSE VARIANCE ACCOUNTS INTO COST OF GOODS SOLD.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
The X Company manufactures widgets. It has developed the following standards per finished unit for direct materials and direct labor:
Direct materials: 5 lbs. at $5.00 per lb.
Direct labor: 1 hour at $20.00 per hour
Budgeted production in units: 20,000 units
Actual production of finished units: 21,000 units
Materials purchased: 120,000 lbs. at a total cost of $630,000. Materials price variance is recognized upon purchase.
Direct materials used: 102,900 lbs.
Direct labor used: 21,300 hours; actual cost $422,805.
- PREPARE
JOURNAL ENTRY TO CLOSE VARIANCE ACCOUNTS INTO COST OF GOODS SOLD.
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