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Cost Summary and Related Journal Entries: Business
Prepare a standard cost summary using a provided template, and then write a 1–2-page analysis of variances in a standard cost summary and how the variances could be corrected.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 1: Operate product-based cost accounting systems.
- Apply procedures for recording standard costs to account for departmental factory costs.
- Prepare journal entries related to standard costs.
- Competency 4: Apply cost analysis to assist management decision making.
- Analyze favorable and unfavorable variances for management decision making.
- Analyze how variances can be corrected.
Cost Summary
Context
All production costs, other than direct materials and direct labor, are lumped together into one category, termed overhead. In a manufacturing company, overhead is also known as factory burden, or manufacturing overhead. This cost category contains a wide variety of cost items. Many inputs, other than direct materials and direct labor, are needed to produce a finished product. Examples include:
- Depreciation on buildings and equipment.
- Maintenance.
- Supplies.
- Supervision.
- Materials handling.
- Power.
- Landscaping of factory grounds.
- Property taxes.
- Plant security.
There are a number of procedures associated with the handling of overhead costs. They include:
- Identification of each overhead cost’s behavior.
- Determination of the budget for overhead costs.
- Recording and tracking actual overhead costs.
- Application of overhead estimates to actual production levels.
- Analyzing budgeted and actual overhead costs for cost control.
Cost Summary
Questions to Consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.
- What is the difference between the standard cost and the actual cost of production?
- Is it possible that a variance of one type might be partly or fully offset by another variance? Explain.
Resources
The following resources are required to complete the assessment.
- Cutler, T. R. (2010). The language of cost. Industrial Engineer, 42(9), 47–50.
- Giguere, P., & Brault, R. (1990). Application of raw material and direct labor costs. CMA Magazine, 64(4), 20–24.
- Jagolinzer, P. (2000). Cost accounting: An introduction to cost management systems. Cincinnati, OH: South-Western College Publishing.
- Nassiripour, S., & Xu, L. (2004). A new method towards better comprehension of variance analysis. Journal of Accounting and Finance Research, 12(7), 34–40.
- Cost Summary
- Usry, M. F. (1974). Standard factory overhead variance analysis. Accounting Review, 49(1), 180–181.
- Wild, J. J., Shaw, K. W., & Chiappetta, B. (2011). Financial and managerial accounting: Information for decisions (4th ed.). New York, NY: McGraw-Hill.
Assessment Instructions
For this assessment, complete the following two parts:
Part 1: Use the Assessment 4 Template (linked in the Resources) to prepare a standard cost summary and related journal entries, based on a scenario provided in the template.
Part 2: Read each statement below (a through h). Then, write a 1–2-page analysis identifying what might cause these variances in a standard cost summary for materials, labor, and factory overhead. In addition, analyze, from a manager’s perspective, how each variance could be corrected and explain why.
Cost Summary
- An unfavorable materials price variance.
- A favorable materials price variance.
- An unfavorable materials quantity variance.
- A favorable materials quantity variance.
- An unfavorable labor rate variance.
- A favorable labor rate variance.
- An unfavorable labor efficiency variance.
- A favorable labor efficiency variance.
Write your analysis in Microsoft Word. Use 12-point font, and double space. Follow APA style for citations and references.
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