Standard Costing

Standard Costing

Anshu Agarwal

Standard Costing

Purpose of Standard Costing: to investigate the reasons for significant variances and to take necessary actions. Cost variance is the difference between a standard cost and the comparable actual cost Variance analysis is the analysis of the cost variances into its component parts and the explanation of variances. Types of Variances : (may be favourable or adverse)

VARIANCES

Material

Labour

Overhead

Sales

Efficiency

Price - Rates

Volume

Reasons for variances : Controllable: e.g.- increase in price due to fail to order timely. Uncontrollable: e.g. Price fluctuations. COMPUTATION OF VARIANCES A: Material Variance: Total Material variance = Standard Cost – Actual Cost a) Price Variance = Actual Quantity (Std. Price – Actual Price) b) Usage variance = Std. Price (Standard Quantity – Actual Quantity) i. Mix Variance = Can be calculated where Total Actual Quantity (Std. cost per unit of Std. Mix - Std. cost per unit of Actual Mix)

several materials are used for manufacturing a product

ii. Yield Variance or Sub – Usage Variance = Std. Price per unit of Std. Mix (total Std. Quantity – total Actual Quantity)

Note: Standard Cost: Standard Price x Standard Quantity Standard Quantity: expected quantity of raw material required for actual output. Standard Price: means the expected (predetermined) cost per unit of raw material. Actual Quantity Actual quantity of raw material used for actual output. Where several materials are used for manufacturing a product, Variances shall be calculated for each material and then sum up each. Std. cost per unit of Std. Mix: Total Std. cost of std. quantity / total std. quantity Std. cost per unit of Actual Mix: Total Std. cost of actual quantity / total actual quantity B: Direct labour variances: Total Labour Cost Variance = Std. Labour Cost – Actual Labour Cost a) Rate variance = Actual time (Std. rate – Actual rate) b) Efficiency variance = Std. rate...