USA Manufacturing Variances

[KMAccountant]

I'm working at a company that would like to "capitalize" their standard cost variances. They have a new ERP and it shows them the differences between their standard cost and the actual costs. There are 3 variances, a purchase price variance; a labor variance; and an overhead variance. I believe that standard cost is not a GAAP approved inventory method, and so to take them from a standard cost system to a perpetual inventory system they need to "capitalize" their standard cost variances so that their P&L and inventory reflect actual purchased prices.

I believe I would take the variance, favorable or unfavorable, and hit COGS and Inventory to align inventory. Then I would "amortize" the variances based on days in inventory. So if inventory turns over every 60 days I'd take an average variance of 2 months.

Am I approaching this correctly?

 

[Stuart.Lyons]

Thats what I would do