Standard cost

STANDARD COST

03/27/15 1S.Kacker,IHM Mumbai

A predetermined cost which is computed in advance of production on the basis of a specification of all the factors affecting cost and used in standard costing.

STANDARD CRITERION

STANDARD COST


It is a technique of accounting which compares the standard cost of each product and service with the actual cost, to determine the efficiency of the operation, so that a remedial action may be taken immediately.

STANDARD COSTING


1. Helps management in planning, co-ordination, motivation, control.

2. Measurement of efficiency.

3. Formulation of policies.

4. Cost reporting.

5. Inventory valuation.

ADVANTAGES


Cost Variance is the difference between standard cost and the comparable actual cost incurred during a period.

Variances are computed under each element of costs.

Variance provides key to cost control.

COST VARIANCE


Variance Analysis is the process of analyzing variances by sub dividing the total variance in such a way that management can assign responsibility for off standard performance.

VARIANCE ANALYSIS


TYPES OF VARIANCE


• MATERIAL COST VARIANCE=

(Std Qty x Std Price)- (Actual Qty x Actual Price)

MCV=(SQ x SP) – (AQ x AP)

• MATERIAL PRICE VARIANCE=

(Std price – Actual price) x Actual Qty

MPV= (SP – AP) x AQ

• MATERIAL USAGE VARIANCE=

(Std Qty – Actual Qty) x Std Price

MUV= (SQ – AQ) X SP

MATERIAL VARIANCE


• MATERIAL MIX VARIANCE

= STD PRICE(REVISED STD QTY – ACTUAL QTY)

REVISED STD QTY= TOTAL ACTUAL QTY x STD QTY

TOTAL STD QTY

• MMV = SP (RSQ-AQ)x SQ

TOTAL SQ

MATERIAL VARIANCE


MATERIAL YIELD VARIANCE

= (STD LOSS ON ACTUAL INPUT –ACTUAL LOSS ON ACTUAL INPUT) X STD AVERAGE PRICE / UNIT

03/27/15 S.Kacker,IHM Mumbai 10

• LABOUR COST VARIANCE=

= (STD TIME x STD RATE)- (AT x AR)

• LABOUR RATE VARIANCE=

= (STD RATE – ACTUAL RATE) x ACTUAL TIME

LRV= (SR – AR)x AT

• LABOUR EFFICIENCY VARIANCE

= (STD TIME – ACTUAL TIME) x STD RATE

= LEV- (ST-AT)x SR

LABOUR VARIANCE


• LABOUR MIX VARIANCE

= STD RATE(REVISED STD TIME – ACTUAL TIME)

REVISED STD TIME= TOTAL ACTUAL TIME x STD TIME

TOTAL STD TIME

• LMV = SR(RST-AT)x ST

TOTAL ST

• IDLE TIME VARIANCE

= IDLE TIME x STD RATE

= ITV= IDLE TIME x SR

LABOUR VARIANCE


• VARIABLE OVERHEAD VARIANCE =

VOV= (STD VARIABLE OVERHEAD – ACTUAL VARIABLE OVERHEAD)

• FIXED OVERHEAD VARIANCE =

FOV= (STD FIXED OVERHEAD- ACTUALFIXED OVERHEAD)

STD FIXED OVERHEAD= ACTUAL OUTPUT x STD FIXED OVERHEAD RATE

STD FIXED OVERHEAD RATE= BUDGETED FIXED OVERHEAD

BUDGETED OUTPUT

OVER HEAD VARIANCE


FIXED OVERHEAD EXPENDITURE VARAINCE=

FOEV= (BUDGETED OVERHEAD- ACTUAL OVERHEAD)

• FIXED OVERHEAD VOLUME VARIANCE=

FOVV= (STD OVERHEAD- BUDGETED OVERHEAD)

OVER HEAD VARIANCE


Following are the particulars in respect of a product where two types of materials ‘A’ and ‘B’ are required. You are required to calculate material variances.

MATERIAL VARIANCE

Material SQ(Kg) SP(Rs) AQ(kg) AP(Rs)

A 240 10.0 280 9.50

B 160 7.50 120 9.00

TOTAL QTY 400 400

Less Normal Loss

40 36

360 364


SOLUTION

1) Material Cost Variance

MCV = (SQ x SP) – (AQ x AP)

A = (240 x 10) – (280 x 9.50)

= 2400 – 2660

= -260

B = (160 x 7.50) – (120 x 9.00)

= 1200 – 1080

= +120

MCV = -260 + 120

= -140

Not favorable03/27/15 16S.Kacker,IHM Mumbai

2. MATERIAL PRICE VARIANCE

MPV= (SP – AP) x AQ

A= (10-9.50)x 280

= 0.50 x 280

= 140

B= (7.50- 9.00) x280

= -1.50 x 120

= - 180

MPV= (140) + (-180)

= -40 – Not Favorable


3. MATERIAL USAGE VARIANCE

MUV= (SQ – AQ) x SP A= (240 – 280) x10 = -40 x10 = -400 B= (160 – 120) x 7.50 = 40 x 7.50 = 300MUV = -400 +300 -100 NOT FAVOURABLE

VERIFICATION MCV = MPV +MUV = (-40) + (-100) = -14003/27/15 18S.Kacker,IHM Mumbai

CALCULATE LABOUR VARIANCESWORKER ST(HRS) SR(RS) TOTAL

(RS)AT (HR) AR(RS) TOTAL

(RS)

SKILLED 20 3 60 30 3 90

UNSKILLED 25 4 100 15 4.5 67.50

45 45

SOLUTION1)LABOUR COST VARIANCE= (ST x SR) – (AT x AR)SKILLED = (20 x 3) – (30 x 3) = -30UNSKILLED = (25 x 4) – (15 x 4.5) = 32.5 LCV= -30 + 32.5 = 2.5 (F)


2) LABOUR EFFICIENCY VARIANCE = (ST – AT) x SR

Skilled= (20 - 30) x 3

= -30

Unskilled = (25 -15) x4

= 40

= -30 + 40 =10

(F)


3) LABOUR RATE OR PAY VARIANCE

= (SR –AR) x AT

Skilled = (3 – 3) x30 = 0

Unskilled= (4 - 4.5) x 15 = -7.5

LRPV= 0 + (-7.5) = -7.5

Verification

LCV = LEV + LRPV

= 10 +(- 7.5)

= 2.5 (F)


SALES VARIANCESA) Sales value variances =

= (Actual Qty x Actual price) – (Std Qty x Std price)

SVV = (AQ x AP) – ( SQ x SP)

B) Sales volume variance=

= (Actual Qty – Std Qty) x Std price

SVOV= (AQ – SQ) x SP


C) Sales price Variance =

=( Actual price – Std price) x Actual Qty

SPV = ( AP – SP) x AQ

D) Sales mix Variance=

= Std price ( Actual Qty - Revised Std Qty)

Revised Std Qty = Total Actual Qty x Std Qty

Total Std Qty

SMV = SP ( AQ – RSQ)

RSQ= Total AQ x SQ

Total SQ


PROFIT VARIANCES• Value Variance

VV = Budgeted profit – Actual profit

• Price Variance

PV = Std Profit – Actual Profit

Where Std Profit = Actual Qty x Budgeted Profit/ unit.

• Volume Variance

VOV = Budgeted Profit – Std Profit


SALES VARIANCECALCULATE SALES VARIANCES


ACTUALP 8000 11 88,000 10 80,000 1 8,000

Q 6000 12 72,000 6 36,000 6 36,000

14,000 1,60,000 11,6000 44,000

BUDGET

P 10,000 15 15,0000 10 100,000 5 50,000

Q 5,000 10 5,0000 6 30,000 4 20,00015,000 2,00,000 1,30,000 70,000


SOLUTION

1. SALES VALUE VAR: (AQ x AP) – (SQ x SP)

P = (8,000 x 11) – (10,000 x 15)

= 88000 – 15,0000 = -62000

Q = (6000 x 12)- (5,000 x 10)

72,000 – 50,000 =22,000

SVV = -62,000 + 22,000 =-40,000


SALES PRICE VARIANCE = (AP x SP) x AQ

P = (11- 15) x 8000 = -32,000

Q=(12-10) x 6000 = 12,000

SPV= -32,000 +12,000 = -20,000

SALES VOLUME VAR: (AQ –SQ) x SP

P = (8,000 -10,000) x 15 =-30,000

Q= (6000 – 5000) x 10 =10,000

SVV = -30000 +10,000 = - 20,000


Standard cost

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