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When a Manufacturing Company Uses Standard Costing Methodology in Their

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When a manufacturing company uses standard costing methodology in their journal entries and accounts, a favorable variance has the effect of being a contra expense.


Definitions:

Machine-Hours

A measure of production time, calculated by the number of hours machines are operating in the manufacturing process.

Budget Variance

The difference between budgeted figures and actual figures for a particular accounting category.

Volume Variance

The difference between the expected and actual sales volumes, impacting revenue and expenses.

Manufacturing Overhead

All indirect costs associated with manufacturing a product, such as factory maintenance, utilities, and quality control.

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