STANDARD COST AND OPERATING

PERFORMANCE MEASURES
Presented by:
ANTONIO, JOHN RYAN A.
MEM-CM
PAMANTASAN NG LUNGSOD NG MAYNILA
MANAGEMENT ACCOUNTING

STANDARD COST
serves as yardsticks that measure achievement and lack of achievement.
represent what costs should be under attainable and acceptable
performance.
standards establish desirable minimum costs.
indicate what the cost of the time or materials should be.
a standard for the future must be more than a projection of the past. Data
must be adjusted for changing economic patterns, changing demand
and supply characteristics and changing technology.
practical standards are light but attainable. They allow normal
machine breakdown, normal material loss, expected lost time, employee
rest periods and can be attained through reasonable though highly
efficient efforts by the average worker at a task.

MANAGING COSTS
Standard
cost

Actual
cost
Comparison between
standard and actual
performance
level

Cost
variance

Amount

Managers focus on quantities and costs

that exceed standards, a practice known as
management by exception.

Standard

Direct
Labor

Direct
Material Overhead

Type of Product Cost

BENEFITS OF STANDARD COSTS

Managers and employees become cost conscious.

They aid management planning.
Standard cost systems integrate managerial, accounting and
engineering functions.
Using standards can save data processing costs.

LIMITATIONS OF STANDARD COSTS

Difficulty may be encountered in determining which

variances are material or significant.
Other important information such as trends may not be
noticed at an early stage.
Subordinates may be tempted to cover up unfavorable
exceptions or report them at all.
The management by exception technique may also affect
supervisory employees in an unsatisfactory manner.

COST VARIANCE ANALYSIS

Standard Cost Variances
Price Variance

Quantity Variance

The difference between

the actual price and the
standard price

The difference between

the actual quantity and
the standard quantity

1. Material Price Variance

2. Labor Price Variance
3. Overhead Price Variance

1. Material Quantity Variance

2. Labor Efficiency Variance
3. Overhead Efficiency Variance

GENERAL MODEL: VARIANCE ANALYSIS

Actual Quantity

Actual Price

Actual Quantity

Standard Price

Price Variance
AQ(AP - SP)
AQ = Actual Quantity
AP = Actual Price

Standard Quantity

Standard Price

Quantity Variance
SP(AQ - SQ)
SP = Standard Price
SQ = Standard Quantity

GENERAL MODEL: VARIANCE ANALYSIS

Actual Quantity

Actual Price

Actual Quantity

Standard Price

Price Variance

Standard Quantity

Standard Price

Quantity Variance

Actual price is the amount actually

paid for the input used.

GENERAL MODEL: VARIANCE ANALYSIS

Actual Quantity

Actual Price

Actual Quantity

Standard Price

Price Variance

Standard Quantity

Standard Price

Quantity Variance

Actual quantity is the amount of direct

materials, direct labor, and variable
manufacturing overhead actually used.

GENERAL MODEL: VARIANCE ANALYSIS

Actual Quantity

Actual Price

Actual Quantity

Standard Price

Price Variance

Standard Quantity

Standard Price

Quantity Variance

Standard price is the amount that should

have been paid for the resources
acquired.

GENERAL MODEL: VARIANCE ANALYSIS

Actual Quantity

Actual Price

Actual Quantity

Standard Price

Price Variance

Standard Quantity

Standard Price

Quantity Variance

Standard quantity is the quantity that

should have been used.

SETTING STANDARDS
Cost
Standards

Analysis of
Historical Data

Task
Analysis

SETTING STANDARDS
MATERIAL STANDARD traditionally contained allowances
for waste and shrinkage. Nowadays, the popular zero defect
philosophy does not include these allowances.
MATERIAL PRICE STANDARD based on operation
schedule and bills of material. Cash discounts and handling
costs should be considered.
STANDARD TIME based on time reports and time and
motion study.
STANDARD LABOR RATE determined by considering the
current rates and competitive markets.
OVERHEAD STANDARDS uses budgeted rates based on
standard hours or other cost drivers.

THANK YOU!!!
Details and examples shall be
reported by the next reporter
Reference:
Management Accounting Concepts and Applications
by: Ma. Elenita Balatbat Cabrera