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Video of Variances Using Journal Entries. CPA Exam BAR in Costs Accounting course by Farhat Lectures. The # 1 CPA & Accounting Courses channel, video No. 46 free certified online
How do you record standard cost variances using journal entries? This CPA Exam BAR lecture walks through journalizing material price variances, material usage variances, and labor rate and efficiency variances in a standard cost system — built for accounting students and CPA, CMA, and EA candidates studying cost and managerial accounting.
Professor Farhat shows the full mechanics: debit unfavorable variances (extra costs), credit favorable variances (cost savings), and keep every entry balanced across Work in Process, Inventory, and Payroll accounts.
Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.
Video Timeline & Key Concepts:
0:00 — Introduction
2:04 — Material Price Variances: recording raw material purchases at standard cost and isolating the price difference
4:28 — Material Usage Variances: standard quantity versus actual quantity consumed in production
6:57 — Labor Variances: separating the labor rate variance and the labor efficiency variance
Frequently Asked Questions:
Why are unfavorable variances recorded as debits?
Unfavorable variances represent costs that exceeded the standard, so they are debited because they increase total cost — the extra spending is captured in a separate variance account.
Why are favorable variances recorded as credits?
Favorable variances mean actual cost came in below standard, so they are credited to reflect a cost reduction relative to the standard that was budgeted.
What is the difference between a material price variance and a material usage variance?
The price variance measures the difference between the actual and standard price paid for materials, while the usage variance measures the difference between the standard quantity that should have been used and the quantity actually consumed.
How are labor variances split in the journal entries?
Labor is broken into a rate variance, which isolates the cost of labor per hour versus standard, and an efficiency variance, which measures how many labor hours were used against the standard allowed.
Why is Work in Process recorded at standard cost?
Work in Process is charged at standard cost so that inventory carries the expected cost, and any difference between standard and actual is isolated in variance accounts for analysis.
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