Standard Costing 

Standard Costing 

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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)

 

 

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