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## Practice As You Learn

### Cost Accounting

#### Hard Practice Test

1) Compute the variances:

AQ x AP             AQ x SP                  SQ x SP

Actual – credit        Standard – debit

The actual amount spent (on the left) will always be the credit amount.

The standard amount (on the right) will always be the debit amount.

Inventory accounts are initially recorded at standard – debits increase inventory

2) Record the same journal entries for job order costing.
Add the variance account in the middle of the journal entry.

Material Purchases:
Raw Materials – standard

Accounts Payable – actual

Material Used
WIP – standard
———
Raw Materials – actual

Direct Labor Used:
WIP – standard
——–
——–
Salaries Payable – actual

WIP – standard
——-
——-

3) Add the balances for RM, WIP, FG, and CGS to get the total inventory costs:

4) Find the percentage for each of the total and allocate the material price variance to all 4 accounts based on the % of the total

 RM RM / total = % WIP WIP / total = % FG FG / total = % CGS CGS / total = % Total 100%

5) Make the material price variance be 0.
Debit if it has a credit balance.
Credit if it has a debit balance.

The 4 accounts (RM, WIP, FG, CGS) will be the opposite debit or credit to balance the journal entry.

6) Repeat step 4 for WIP, FG, CGS only. Find new percentages.

7) Total all the variances (except material price variance), netting debits with credits to get a net total.

8) Take the total net variance x each % for WIP, FG, and CGS to get the amount to record for each.

9) Make each material used, labor, and overhead variance account equal to 0.
Debit if it has a credit balance.
Credit if it has a debit balance.

The 3 accounts will be the opposite debit or credit required to balance the journal entry.

Do not allocate immaterial variances to RM, WIP, FG, and CGS.
0 out variances with a debit or credit and move them to CGS to balance the entry.

Variable Product Costs Variance – Practice as You Learn Problem

A. Using the following variance computation, record the inventory costs at standard and the variances.

B. Allocate the variances to inventory accounts given the accounts have the following unadjusted balances:

 Raw Materials \$184,845 Work In Process \$ 11,456 Finished Goods \$ 79,241 Cost of Goods Sold \$756,295

Material:

 AQ x AP             AQ      x   SP          AQ    x  SP            SQ x SP(Purchased)   Purchased             Used                      (used) \$46,210         15,000 x \$3            15,300 x \$3            5,200 x 3 x \$3                         = \$45,000               = \$45,900                  = \$46,800 Variance         \$1,210 U                                  \$900 F

Labor:

 AQ x AP                  AQ x SP                  SQ x SP \$239,500            24,860 x \$10        5,200 x 5 x \$10                                 = \$248,600           = \$260,000 Variance     \$9,100 F                  \$11,400 F

 AQ x AP                  AQ x SP                  SQ x SP \$168,600            24,860 x \$7            5,200 x 5 x \$7                              = \$174,020              = \$182,000 Variance     \$5,420 F            \$7,980 F

 Actual                   Budget                  Applied \$213,065            \$225,000               \$216,094 Variance       \$11,935 F             \$8,906 U

A. Journal Entries to record inventory costs at standard and variances:

 Raw Materials Inventory                 45,000RM Purchase Price Variance            1,210           A/P                                                       46,210
 WIP                                                      46,800             Material Quantity Variance               900             Raw Materials Inventory              45,900
 WIP                                                    260,000             Labor Rate Variance                           9,100             Labor Efficiency Variance                11,400            Wages Payable                                239,500
 WIP                                                    182,000            Spending Variance                             5,420            Efficiency Variance                             7,980           Manufacturing Overhead             168,600
 WIP                                            216,094Volume Variance                         8,906            Budget Variance                          11,935            Manufacturing Overhead        213,065

B. Allocate the variances to inventory accounts:

First: Determine the percentages to use to allocate:

 Raw Materials \$ 184,845 = .179 Work In Process \$    11,456 = .011 Finished Goods \$    79,241 = .077 Cost of Goods Sold \$  756,295 = .733 Total \$1,031,837

 Work In Process \$   11,456 = .014 Finished Goods \$   79,241 = .093 Cost of Goods Sold \$ 756,295 = .893 Total \$ 846,992

Second –
Close out the raw material price variance –
It is a debit, so credit it to make it 0
Then debit the other 4 accounts for the % computed above of the 1,210.

 Raw Materials \$ 217 Work in Process \$   13 Finished Goods \$   93 Cost of Goods Sold \$ 887 Raw Material Price Variance \$ 1,210

Third – net the other variance together:

 Material quantity variance (900) credit Labor Rate Variance (9,100) credit Labor Efficiency Variance (11,400) credit SpendingVariance (5,420) credit Efficiency Variance (7,980) credit Budget Variance (11,935) credit Volume Variance 8,906 debit Total Variance (37,829) credit

Fourth – Determine the amount of the total to allocated to each inventory account using the % computed above. Multiply the total net by the % previously computed. Make the net variance go to 0 with a debit and the inventory accounts will be credits.

Fifth – Make the variance accounts go to 0.

 Material Quantity Variance \$     900 Labor Rate Variance \$  9,100 Labor Efficiency Variance \$11,400 Spending Variance \$  5,420 Efficiency Variance \$  7,980 Budget Variance \$11,935 Volume Variance \$  8,906 Work In Process \$     530 Finished Goods \$  3,518 Cost of Goods Sold \$33,781

Important to Note:

The standard amount is always the debit for the amount inventory is initially recorded

The actual amount is always the credit for the amount that is paid.

Variance accounts are closed by recording the opposite of what was originally recorded.