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The main purpose of standard costing is cost control. To achieve this purpose, the variances should be analysed according to their causes. Analysis should be timely so that much time is not lost in taking corrective action wherever needed. In the partial plan, we have seen that the variances are analysed at the end of period. The single plan system envisages the posting of all items in the debit side of the work-in-progress account at the standard cost leaving the credit side to represent the standard cost of finished production and work-in-progress. This system enables the ascertainment of variances as and when the transaction is posted to work-in-progress account.
In other words, the analysis of variances is done from the original documents like invoices, labour sheets, etc., and this method of analysis is known as analysis at source. Since, the single plan system contemplates the analysis of variances at source, the installation of this system requires more planning so that effective documentation at each stage is introduced for proper recording and analysis of variance. Thus for example, the issue of bill of materials to the stores enables the storekeeper to calculate the standard value of materials. If any material is requisitioned beyond the standard, he can mark the same for material usage variance account. In the production department, as and when the finished output is recorded, the standard waste and actual waste can be compared and necessary entries can be made by the shop supervisors for posting the excessive usage to appropriate variance accounts.
Accounting entries : So far as materials are concerned, material price variances are recorded at the time of receipt of the material and the material quantity variances are recorded as far as possible when excess materials are used. The entries will be as illustrated below:
1. Dr. Material Control A/c
Dr. or Cr. Material Price Variance A/c
Cr. Creditors A/c.
This entry enables the firm to debit the material control account with the actual purchases at standard cost and credit the creditor ’s account at the actual cost of actual prices thereby transferring the variances to price variance account.
2. Dr. Work-in-progress Control A/c
Dr. or Cr. Material Usage Variances A/c
Cr. Material Control A/c
This entry charges the work-in-progress control account with the standard cost of standard quantity and credit the material control account at the standard cost of actual issue, the variance being transferred to usage variance account.
3. Dr. Wages Control A/c
Dr./Cr. Labour Rate Variances A/c
Cr. Cash
