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The unfavorable materials price variance is

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Unformatted text preview: ated rapidly. The unfavorable materials price variance is calculated as follows: MATERIALS PRICE VARIANCE = (SP - AP) X AQ = ($80 - $90) X 4,100 = <$41,000> Materials usage was favorable since less material was used (4,100 pieces of pipe) than was standard (4,250 pieces of pipe). This resulted in a favorable materials quantity variance: MATERIALS QUANTITY VARIANCE = (SQ - AQ) X SP = (4,250 - 4,100) X $80 =$12,000 These two variances net (<$41,000> + $12,000) to produce the total $29,000 unfavorable outcome: Download free ebooks at bookboon.com 26 Variance Analysis Tools for Enterprise Performance Evaluation 4.3 Journal Entries for Direct Material Variances A company may desire to adapt their general ledger accounting system to capture and report variances. Let’s see how this might occur for Blue Rail. First, do not ever lose sight of the very simple fact that the amount of money to account for is still the money that was actually spent ($369,000). To the extent the price paid for materials differs from standard, the variance is debited (unfavorable) or credited (favorable) to a Materials Price Variance account. This results in the Raw Materials Inventory account carrying only the standard price of materials, no matter the price paid: 8-31-XX 328,000 Materials Price Variance * Raw Materials Inventory 41,000 Accounts Payable 369,000 To record purchase of raw materials at standard price and related unfavorable variance Please click the advert Budget-Friendly. Knowledge-Rich. The Agilent InfiniiVision X-Series and 1000 Series offer affordable oscilloscopes for your labs. Plus resources such as lab guides, experiments, and more, to help enrich your curriculum and make your job easier. Scan for free Agilent iPhone Apps or visit qrs.ly/po2Opli See what Agilent can do for you. www.agilent.com/find/EducationKit © Agilent Technologies, Inc. 2012 u.s. 1-800-829-4444 canada: 1-877-894-4414 Download free ebooks at bookboon.com 27 Work in Process is debited for the standard cost of the standard quantity that should be used for the productive output achieved, no matter how much is actually used. Any difference between standard Variance Analysis Tools for Enterprise Performance Evaluation and actual raw material usage is debited (unfavorable) or credited (favorable) to the Materials Quantity Variance account: Work in Process is debited for the standard cost of the standard quantity that should be used for the productive output achieved, no matter how much is actually used. Any difference between standard and actual raw material usage is debited (unfavorable) or credited (favorable) to the Materials Quantity Variance account: * 8-31-XX * Work in Process Inventory 340,000 Raw Materials Inventory Materials Quantity Variance 328,000 12,000 To transfer raw materials to production at standard usage rates and related favorable quantity variance The Materials Price Variances and Materials Quantity Variances are generally reported by decreasing income (if unfavorable debits) or increasing income (if favorable credits), although other outcomes are possible (alternative dispositions are discussed in more advanced managerial accounting c...
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