Variance Analysis: Material price variance: actual price versus standard price times the actual quantity (purchase quanity if purchase price variance, usage quantity if usage price variance); purchasing department's responsibility Material usage variance : actual quantity used versus standard quantity allowed for the actual units produced time the standard price; production's responsibility Material mix variance: actual blend (mix) quantity of each material used versus the standard blend (mix) quantity allowed for each material; production's responsibility Material yield variance: actual quantity of output versus the standard output quantity allowed based on the actual input; total actual input at the average standard input price versus the standard price of the standard input quantity for each material; production's responsibility Labor rate variance: actual rate versus standard rate times actual hours; personnel (scheduleing) responsibility Labor efficiency variance: actual hours worked versus standard hours allowed for the actual production quantity times the standard price; production's responsibility Controllable variance: actual dollars of overhead spent versus the flexible budget based on standard base allowed for actual production; department manager's responsibility Volume variance: standard hours allowed versus normal hours times the fixed overhead rate; top management's responsibility Spending Variance: actual dollars of overhead spent versus the flexible budget based on actual base, can be separated into variable and fixed by comparing the actual variable overhead to the variable budget based on actual base and by comparing the actual fixed overhead to the fixed budget; department manager's responsibility Variable Efficiency variance: Budget dollars based on actual base compared to budget dollars based on standard base or difference in actual base and standard base times variable overhead rate. Unfavorable variances: actual greater than standard; standard or actual hours less than normal hours; debit balance. Favorable variance: actual less than standard; standard or actual hours more than normal hours; credit balance. Entries for standard costs: If material price variance is to be recognized at purchase , the material inventory is carried at standard price. Debit the material inventory for actual quantity purchased at standard price, credit accounts payable for actual quantity time actual prices, and recognize the price variance within the entry. Normal price variance are taken directly to the Income Statement. If the variance would cause a significant increase in the cost of the product, then the product cost should be adjusted as well as the selling price. This is way the variance analysis is so important. Without this analysis, you would show a large variance but nothing would be done to correct the problem. if material price variance is to be recoginzed at usage , the material inventory is carried at actual price and a cost flow assumption must be used. Debit the material inventory for actual quantity at actual price. The usage is credited to material inventory for actual quantity and actual price base on the appropriate cost flow adn debited to work-in-process at standard quantity time standard price recognizing both variances within the entry. Work-in-process is debited for standard quantity time standard price for material, standard hours times standard rate for labor, and the standard base times the standard overhead rate for overhead under the single plan approach to WIP. Any variances not previously recognized (recorded) are done so at this time. An unfavorable variance is debited to the variance account and a favorable variance is credited to the variance. All variances must be closed out at the end of the fiscal year if not before. The theoretically correct way to close them is to allocate them to work-in-process, finished goods, and cost of goods sold proportionately. If the total variances are insignificant, they could be closed to cost of goods sold only. Losses: Scrap is a type of by-product of the production process having a very minimal sales value. If sold on a timely basis, no inventory value need b assigned; the quantity must be inventoried, however. If not sold on a timely bases, in order to better match revenues and expenses, estimated sales value should be used as the inventory value of the scrap at production point reducing the cost of the main product or crediting income from scrap at that time. Spoilage is damaged or irregular product which is not going to be fixed or reworked but can be sold "as is" for less than the cost to produce. The cost (or loss) of normal spoilage is charge to factory overhead when it is considered due to internal failure; the cost or loss is charged to the job (WIP) if caused by the customer. Rework (defective work) is damaged or irregular product that the company chooses to fix. After being fixed, it can be sold as regular, good product. The cost of reworking increases the cost of the good product. If the specific job is charged, the cost of rework is added directly to the finished inventory cost. Rework is usually handled this way when it is customer's fault that it occurred (usually because of a change in their order). If the specific production is not charged, the rework cost is then charged to factory overhead and is usually due to internal failure (the company's fault). Normally lost units are not used within equivalent units when the loss occurs early in the production process due to something like evaporation or when the loss is said to occur during the process without identifying specifically where during. This increases the cost per equivalent unit which is used to cost both the transfer out and the ending inventory, thus increasing both costs. Normally lost units are used within equivalent unit when inspection takes place at a specific point duing the production process and the cost of the lost units are charged to factory overhead. This occurs if the loss is due to internal failure (the company's fault). Any portion of the cost that can be recovered (sales value) is charged to the spoiled goods inventory. Abnormally lost units are always used within equivalent unit at the inspection point stage of completion; their cost is transferred out to a special loss account and does not affect the cost of good units.