Professional Documents
Culture Documents
AND
STANDARD COSTING
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Topic Objectives
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The usage of standard costing
Setting of standard cost and types of
standard
Calculation of variance:
◦ Direct material
◦ Direct labor
◦ Factory overhead
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• The cost that has been pre-determined after
considering other factors.
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Planning and controlling:
Compare actual cost & budgeted cost
Improve performance
Increase efficiency
Product costing:
Provide readily available unit cost
information
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Involve joint efforts on:
• Engineering studies:
Determine the most efficient way to operate
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Ideal standard
• Maximum efficiency
Normal standard
• Currently attainable standard
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Variances are the difference between the
actual manufacturing cost and the standard
cost at the actual level of production.
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1. Direct material
2. Direct labor
3. Factory overhead
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The expected cost per unit product
Illustration 1:
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Standard Standard Standard Cost
Price Usage RM
Direct material:
Peanut 2.80/kg 0.15kg 0.42
Butter 2.70/kg 0.10kg 0.27
Sugar 1.20/kg 0.25kg 0.30
0.99
Direct labor:
Machine operator 4.00/hour 0.02hour 0.08
Packaging 3.00/hour 0.01hour 0.03
0.11
Factory OH:
Variable costs 5.00/hour 0.01hour 0.05
Fixed costs 12.00/hour 0.01hour 0.12 0.17
Standard cost per unit 1.27
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If Tasty Nut produces 10,000 bottles of peanut
butter, the expected total cost would be:
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Cost element Actual cost Standard cost Variance
F = (Favorable) U = (Unfavorable)
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To measure the difference between the actual
cost and the standard cost of direct materials.
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(Actual Price x Actual Quantity) - (Standard Price x Actual Quantity)
Simplified to be:
AQ ( AP – SP )
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(Standard Price x Actual Quantity) - (Standard Price x Standard Quantity)
Simplified to be:
SP ( AQ – SQ )
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Actual Price x Actual Qty Std Price x Actual Qty Std Price x Std Qty
Usage Variance
Price Variance
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Illustration 2
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Direct material price variance: AQ ( AP – SP )
420 (F)
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Direct material usage variance: SP ( AQ – SQ )
20 (U)
Therefore ,
Total direct material variance = 420 (F) + 20 (U)
= 400 (F)
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Measures the differences between the actual cost
and the cost that suppose to be paid to the labor.
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(Actual Hour x Actual Rate) - (Actual Hour x Standard Rate)
Simplified to be:
AH ( AR – SR )
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(Standard Rate x Actual Hour) - (Standard Rate x Standard Hour)
Simplified to be:
SR ( AH – SH ) *time variance
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Actual Hour x Actual Rate Act Hour x Std Rate Std Hour x Std Rate
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Illustration 3:
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AH ( AR – SR )
Direct Labor Rate Variance:
40 (F)
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Direct Labor Efficiency Variance: SR ( AH – SH )
10 (F)
Therefore,
total direct labor variance: = 40 (M) + 10 (M)
= 50 (M)
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Measures the differences between the actual cost
and the supposed related cost of factory overhead.
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Actual Overhead Costs - Flexible Overhead Costs
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Flexible OH Costs - Standard OH at actual production
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Actual OH Costs Flexible OH Costs Std OH at actual prod.
Overhead Variance
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Illustration 4
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Flexible budget variance:
Variable OH:
Actual cost - (Std OH per unit x actual production )
= 560 - (0.05 x 10,000)
= 60 (U)
= 0
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Production volume variance:
Variable OH :
Variable OH costs - (Std OH per unit x actual production )
= 560 - (0.05 x 10,000)
= 60 U
Fixed OH :
Flexible OH costs - (Std OH per unit x actual production )
= 1,440 - (0.12 x 10,000)
= 240 (U)
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Total factory OH variance :
= 300 (U)
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Actual Costs: Variance:
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