Standard costing includes setting standard rates to absorb material , labour ,overheads. Setting of standards rates helps in exact valuations , strengthening control over differences and performance measurement. Standard costing aims to set standards at pre-determined rates and to account for differences of possible variations. These are studied and reasons are analyzed , technically spelled as VARIANCE ANALYSIS
Four types of standards can be set:
- Basic standard set long time ago , remain unchanged over period of time
- Ideal standard : set on perfect conditions, assuming no losses( practically not possible)
- Attainable standard : set under efficient conditions with allowance for losses
- Current standard : set on entity ‘s current conditions
Variance Analysis
Difference between expected and actual results
| Favorable | Unfavorable |
|
Actual > Expected |
Actual < Expected
|
MATERIAL VARIANCE
| SQ * SP | AQ * AP | AQ * SP | RAQ * SP | ||
| 1 | 2 | 3 | 4 | ||
1 Material Cost Variance Standard Material Cost – Actual Material Cost OR
(SQ * SP) – (AQ * AP) i.e.(1 – 2)
2 Material Cost Variance (AQ * SP) – (AQ * AP) i.e.(3 – 2)
3 Material Usage Variance (SQ * SP) – (AQ * SP) i.e.(1 – 3)
4 Material Mix Variance (RAQ * SP) – (AQ * SP) i.e.(4 – 3)
5 Material Yield Variance (SQ * SP) – (RAQ * SP) i.e.(1 – 4)
6 Material Purchase Price Variance(MPPV)
(PQ * SP) – (PQ * AP)
Notes: If stdQty in mix Variance B/W two products is 1:1 then revised Actual Qty is [(A + B)/2]
LABOUR VARIANCE
| SH * SR | AH * AR | AH * SR | RAH * SR | ||
| 1 | 2 | 3 | 4 |
1 Labour Cost Variance Standard Wages – Actual Wages
(SH * SR) – (AH * AR) i.e.(1 – 2)
2 Labour Rate Variance (AH * SR) – (AH * AR) i.e.(3 – 2)
3 Labour Efficiency Variance (SH * SR) – (AH * SR) i.e.(1 – 3)
Based On Output
4 Labour Mix Variance (RAH * SR) – (AH * SR) i.e.(4 – 3)
5 Labour Efficiency Variance (SH * SR) – (RAH * SR) i.e(1 – 4)
Based on Time
5(a) Labour Idle Time Variance (LITV)
Actual Idle Hrs * Standard Rate Per Hr
5(b) Labour Revised Efficiency Variance (LREV)
(Balancing Figure) i.e.[5(a) – 3]
SALES VARIANCE
| Total/Turnover Approach | BQ * BP | AQ * AP | AQ * BP | RAQ * BP | ||
| 1 | 2 | 3 | 4 | |||
| Profit/Margin Approach | BQ * BM | AQ * AM | AQ * BM | RAQ * BP | ||
| 1 | 2 | 3 | 4 | |||
1 Budgeted Margin Budgeted Price Per Unit – Std Cost Per unit
2 Actual Margin Actual Sales Per Unit – Std Cost Per unit
Total Turnover Approach
1 Total Sales Variance Budgeted Sales – Actual Sales
(BQ * BP) – (AQ * AP) .i.e.(1 – 2)
2 Sales Price Varance (AQ * BP) – (AQ * AP) i.e.(3 – 2)
3 Sales Volume Variance (BQ * BP) – (AQ * BP) i.e.(1 – 3)
4 Sales Mix Variance (RAQ * BP) – (AQ * BP) i.e.(4 – 3)
5 Sales Qry Variance (BQ * BP) – (RAQ * BP) i.e.(1 – 4)
Margin / Profit Approach
1 Total Sales Margin Variance Budgeted Sales Margin – Actual Sales Margin
(BQ * BM) – (AQ * AM) i.e.(1 – 2)
2 Sales Margin Price Variance (AQ * BM) – (AQ * AM) i.e.(3 – 2)
3 Sales Margin Volume Variance (BQ * BM) – (AQ * BM) i.e.(1 – 3)
4 Sales Margin Mix Variance (RAQ * BM) – (AQ * BP) i.e.(4 – 3)
5 Sales MargnQty Variance (BQ * BM) – (RAQ * BM) i.e.(1 – 4)
1 Dual Plan (Actual Cost as a % of Basic Cost) – (Current Cost as a % of Basic Cost)
VARIABLE OVERHEAD VARIANCE
| Based On Time | SH * SR | AVOH | AH * SR | ||
| 1 | 2 | 3 | |||
| Based on Output | AO * SP | AVOH | SO * SR | ||
| 1 | 2 | 3 |
Variable OH Cost Variance (AO * SR) – (AH * AR) i.e.(1 – 2)
VOH Expenditure Variance (AH * SR) – (AH * SR) i.e.(3 – 2)
VOH Efficiency OR Utilisation Variance
(SH * SR) – (AH * SR) i.e.(1 – 3)
Voh Idle Time Variance Actual Idle Time Hr * SR (Always Adverse)
Voh Revised Efficiency Variance
(Bal Fig), i.e( 3 – 4)
FIXED OVERHEAD VARIANCE
| AO * SR | AFOH | BFOH | AH * SR | PFOH |
| 1 | 2 | 3 | 4 | 5 |
FOH Cost Variance Standard Cost OR Absorbed Cost FOH – Actual FOH
(AO * SR) – AFOH i.e.(1 – 2)
FOH Expenditure Variance BFOH – AFOH i.e.(3 – 2)
FOH Volume Variance (AO * SR) – (BFOH) i.e.(1 – 3)
FOH Capacity Variance (AH * SR) – (BFOH) i.e.(4 – 5) OR
(AH * SR) – (PFOH) i.e.(5 – 4)
FOH Efficiency Variance (AO * SR) – (SO * SR)
(AO * SR) – (AH * SR) i.e.(1 – 4)
Calender Variance (PH * SR) – (BH * SR) OR
(PFOH * BFOH)
FOH Idle Tome Variance (FITV)
Actual Idle Hrs * SR (per Hr)