Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


An illustration of journal entries using standard costs



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An illustration of journal entries using standard costs
In standard costing, we want to get work-in-progress (WIP) costs at standard so each lot or batch of product has the same standard cost. When purchasing materials, we must pay the AP for the AG purchased, but we debit materials at the BP for the AQ purchased. At the purchase date, we know the BP. The difference between debit and credit BP − AQ)(AQ
purchased
)] is the materials purchase value (PV). By the time the materials are used, we know the BQIA for actual outputs. Hence, we debit WIP for BP × BQIA. Materials Control is credited for BQ × AQ used (we put materials into the account at AQ, so we must take them out at AQ). The difference between the debit and credit BP × (BQIA − AQ
used
)] is the materials EV. From WIP to EG to
CGS, all costs remain at standard.


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012

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