Standard Cost

STANDARD COSTING AND VARIANCE ANALYSIS

INTRODUCTION 6

DEFINITON 8

HOW TO CREATE STANDARD COST 11

VARIANCE ANALYSIS 13

VARIANCE CALCULATION 14

FIXED OVERHEAD VARIANCES 18

MIX AND YIELD VARIANCE 20

INVESTINGATING VARIANCE 22

PLANNING AND OPERATION VARIANCE 24

CAUSES OF VARIANCE 25

BENCHMARKING 27

McDONALDIZATION 29

ADAVANTAGE & DISADVANTAGE 32

BIBLIOGRAPHY 34

Introduction to Standard Costing

A standard cost is planned or forecast unit cost for a product or service, which is assumed to hold good given expected efficiency and cost levels within an organization. It represents a target cost and is useful for planning, controlling and motivating within an organization.

Variance analysis is a budgetary control process, which compares standard or budgeted costs and revenues with the actual results of an organization, in order to obtain information regarding any exceptions from budget, this information is also used to improve performance through control action e.g. correction problems.

Standard costing can be used for

Budget preparation e.g. planning

Control through exception reporting e.g. performance measurement

Stock valuation

Cost bookkeeping

Motivating staff

Under a standard costing system an organisation can value stock at standard cost, incorporating this within the ledger or cost accounts of the organization, the budget or forecasts being a memorandum kept outside the ledger accounts.

Types of Standard

Ideal Standard e.g. attained under the most favourable conditions with no allowance for any waste, scrap, idle time or downtime.

Attainable or Expected Standard e.g. what should be achieved with a reasonable level of effort given current efficiency and cost levels....