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When recording journal entries for production costs using a standard cost accounting system, the favorable variances are recorded as credit and the unfavorable variances are recorded as debit.
Due to the fact that manufacturers are unable to estimate exact costs in advance, standard costing is the technique of estimating costs during the production process. This methodology is used by manufacturers to forecast future costs for a variety of factors, including labour, materials, production, and overhead.
The production team uses this information to estimate anticipated expenses and create budgets and plans accordingly. The terms projected cost, predetermined cost, expected cost, and budgeted cost are all used to describe standard costs. Even before the production process is finished, standard costing aids manufacturers in setting the prices of the finished goods.
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