Standard Costing & Variances
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Transcript of Standard Costing & Variances
STANDARD COSTING
ZAREEN KHAN13053032026
MBA-PUMT
System for Computing and Analyzing Costs and its Operations in an
Organization.
Historical Cost Vs. Standard Cost
COSTING:
Original cost/value of an asset or liability at the time of transaction.
Example:
– June 2013: 20 units were bought on RS 40/unit
– July 2013: current price RS 50/unit
– It will be recorded as Rs. 800 NOT Rs. 1000 in balance
sheet.
HISTORICAL COSTING:
Doesn’t value appreciation / depreciation of asset but, cost.
Unhelpful while comparing corporate performances.
No set standards.
HISTORICAL COSTING: LIMITATIONS
Cost of product occurred or incurred at the time of production.
Incurred on Direct Material, Direct Labor and Factory Overheads.
ACTUAL COST:
• Standard: measure, criteria. (Example: ISO)
• Variances: Standard cost Vs. Actual cost
STANDARD COSTING:
Predetermined, planned or expected cost under anticipated conditions.
When the actual cost is less than standard cost , it is known as FAVORABLE
VARIANCE (F).
When actual cost exceeds
standards cost, it is known as
UNFAVORABLE or ADVERSE
VARIANCE (A).
The deviation of actual performance from standard is
called VARIANCE.
Role: Provide reasons for off-standard performance.
Purpose: Improved operations, error corrections and deployment of resources effectively -> reduced costs.
VARIANCE ANALYSIS:
Direct Material Variance
Direct Labor Variance
Factory Overheads Variance
How much more or less material cost had been incurred when actual are
compared to the standards?
DIRECT MATERIAL VARIANCE:Direct material costs (price and quantity variances)
For Price:(Actual Quantity X Actual Price) – (Actual Quantity X Standard Price)
For Quantity:(Actual Quantity X Standard Price) – ( Standard Quantity X Standard Price)
How much wage is paid on the output achieved?How much time has been taken to achieve the output?
DIRECT LABOR VARIANCE:Direct labor costs (wage rate and efficiency variances)
For Rate:(Actual Hours X Actual Rate) – (Actual Hours X Standard Rate)
For Quantity:(Actual Hours X Standard Rate) – (Standard Hours X Standard Rate)
How much fixed and variable overheads have been charged actually than standard?
FACTORY OVERHEADS VARIANCE:Manufacturing/Factory Overheads (fixed and variable)
For Variable Overhead Variance:(Actual Output X Standard Rate) – (Actual Output X Actual Rate)
For Fixed Overhead Variance:(Actual Output X Standard Fixed Overhead) – (Actual Output X
Actual Fixed Overhead)
Rules, levels, guidelines for
production and price strategies
Comparison and analysis of data
management
Good for cost consciousness organizations
Prepare financial statements effectively
Better economy, efficiency, and productivity
Assists in budgeting
Helps in performance management
STANDARD COSTING: BENEFITS
Process is technical
Not an easy task to set the standards
Meeting standards should not only be
the target.
STANDARD COSTING: LIMITATIONS
THANK YOU!