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    Standart Costing PDF

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    VIHARI D
    Standard costing involves calculating variances between standard and actual costs to analyze reasons for differences and take corrective actions. There are variances for material, labor, and overhead costs, as well as sales variances. Variances can be favorable or unfavorable and are classified as controllable or uncontrollable. Under the partial plan, variances are analyzed at period-end, while the single plan analyzes variances as transactions occur by debiting/crediting variance accounts.

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    Standart Costing PDF

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    VIHARI D
    55 views3 pages
    Standard costing involves calculating variances between standard and actual costs to analyze reasons for differences and take corrective actions. There are variances for material, labor, and overhead costs, as well as sales variances. Variances can be favorable or unfavorable and are classified as controllable or uncontrollable. Under the partial plan, variances are analyzed at period-end, while the single plan analyzes variances as transactions occur by debiting/crediting variance accounts.

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    Standard costing involves calculating variances between standard and actual costs to analyze reasons for differences and take corrective actions. There are variances for material, labor, and overhead costs, as well as sales variances. Variances can be favorable or unfavorable and are classified as controllable or uncontrollable. Under the partial plan, variances are analyzed at period-end, while the single plan analyzes variances as transactions occur by debiting/crediting variance accounts.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    55 views3 pages

    Standart Costing PDF

    Uploaded by

    VIHARI D
    Standard costing involves calculating variances between standard and actual costs to analyze reasons for differences and take corrective actions. There are variances for material, labor, and overhead costs, as well as sales variances. Variances can be favorable or unfavorable and are classified as controllable or uncontrollable. Under the partial plan, variances are analyzed at period-end, while the single plan analyzes variances as transactions occur by debiting/crediting variance accounts.

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    of 3

    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 ii. Yield Variance or Sub – Usage Variance =
    product 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 (Std. time – Actual time worked)
    a. Gang Composition variance or Labour mix variance:
    Total Actual time worked (Std. rate of std. gang – Std. rate of actual Gang)
    b. Sub - efficiency variance
    Std. rate for std. time (total std. time – total actual time)

    ~1~
    Standard Costing Anshu Agarwal
    c) Labour idle time variance :
    Std. Labour rate (Actual hours worked – Actual Labour hours paid)
    Note:
    Standard Labour Cost: Standard Rate x Standard Time
    Standard Time: expected no. of labour hours required for actual output.
    Standard Rate: means the expected (predetermined) Rate per labour hour.
    Actual Time: Actual no. of labour hours paid.
    Std. rate of std. gang: Total Std. cost of std. gang hours / total std. hours
    Std. rate of Actual Gang: Total Std. cost of actual Gang Hours / total actual hours

    C: Overhead variances : Absorbed Overhead – Actual Overheads


    Overheads are absorbed over actual output at a pre-determined rate, which is known as
    „Standard overhead recovery rate‟, „Standard overhead absorption rate‟ or „Standard burden rate‟.
    Calculating Overhead Recovery Rate:-
     Estimate the likely overhead expenses for next period.
     Bifurcate into fixed and variable elements.
     Estimate the level of normal capacity, either in terms of production or machine hours etc.
    Std Fixed Overhead Rate = Budgeted Fixed Overhead / Normal Volume of capacity
    Std Variable Overhead Rate = Budgeted Variable Overhead / Normal Volume of capacity

    a) Variable Overhead Varinace = Std. overhead for actual output – Actual overhead
    i. Variable Overhead Budget or Expenditure Variance =
    Budgeted overheads for actual hours worked – Actual Overheads; or
    (Std. Rate x Actual Hours worked ) – Actual Overheads
    ii. Variable Overhead Efficiency Variance =
    Std. Overhead for std. hours – Std. overhead for actual Hours; or
    Std. Rate (std. Hours – Actual Hours)
    Note:
    Std. Overhead for actual output: Std. hours required for actual output x Std. Overhead per hour
    Budgeted overheads for actual hours worked : Std. Rate x Actual Hours worked
    Standard hours: means the expected hours required for actual output.
    Overhead mean “Variable Overhead”.

    b) Fixed overhead variances : Std. overhead for actual output – Actual overhead
    i. Expenditure Variance:= Total Budgeted overheads – Actual Overheads
    ii. Volume Variance: = Std. Overhead for actual output – total budgeted overheads
    1. Efficiency Variance: = Std. Rate (Std. Hours Required – Actual Hours worked)
    2. Capacity Variance: = Std. Rate (Actual Hours worked– Revised Budgeted Hours)
    3. Calendar Variance: = Std. Rate (Revised Budgeted Hours – total Budgeted Hours)
    Note:
    Std. Overhead for actual output: Std. hours required for actual output x Std. Overhead per hour
    Total Budgeted overheads : Std. Rate x hours required for budgeted production.
    Revised Budgeted Hours: Hours per day x no. of actual working days
    Standard hours: means the expected hours required for actual output.
    Overhead mean “Fixed Overhead”.

    D: Sales variances :
    1. Sales turnover or value method:
    Sales Value Variance = budgeted sales – actual sales
    a) Sale Price Variance = Actual Quantity (Actual Price – Budgeted Price)
    b) Sale Volume Variance = Budgeted Price (Actual Quantity – Budgeted Quantity)
    i. Sales Mix Variance : =
    Total Actual Quantity (Budgeted Price per unit of actual mix – Budgeted price per unit of
    Budgeted mix)
    ii. Sales Quantity Variance : =
    Budgeted Price per unit of budgeted mix (total Actual Quantity –Total Budgeted Quantity)
    ~2~
    Standard Costing Anshu Agarwal

    2. Profit or sales margin method:


    Total sales margin variance: = Actual Margin – Budgeted Margin
    a) Sales Margin Price Variance: =
    Actual Quantity (Actual Margin per unit – Budgeted margin per unit)
    b) Sales Margin Volume Variance: =
    Budgeted Margin per unit (Actual units – Budgeted units)
    i. Sales Margin Mix Variance: =
    Total Actual Qty. (Budgeted Margin per unit of actual mix – Budgeted Margin per unit of
    Budgeted mix)
    ii. Sales Margin Quantity Variance: =
    Budgeted margin per unit of budgeted mix (total Actual Quantity –Total Budgeted
    Quantity)

    ACCOUNTING PROCEDURE FOR STANDARD COST


    Partial plan: under this plan the variances are analysed as the end of period. The following is the
    procedure under this plan.
     Record in Material, Wages and Overhead Control Accounts at Actual Cost.
     Charge to WIP control account at Actual Cost.
     Transfer to Finish Goods Control account at Standard Cost.
     Record WIP goods at Standard Cost in WIP control Account.
     Balancing figure in the WIP control Account is Variance.
     Analyse the variance at the end of period.
     The variances are debited or credited to various variance accounts.
    Single Plan: under this plan the variances are analysed as soon as the transactions take place. The
    entries under this plan shall be made as follow:
    1. Dr. Material Control a/c (Standard Cost)
    Dr. or Cr. Material Price Variance a/c
    Cr. Creditors a/c or GL Adjustment a/c (Actual Cost)

    2. Dr. Wages Control a/c (Standard Cost)


    Dr. or Cr. Labour Rate Variance a/c
    Cr. Cash a/c or GL Adjustment a/c (Actual Cost)

    3. Dr. Overhead Control a/c (Standard Cost)


    Dr. or Cr. Overhead Expenses Variance a/c
    Cr. Cash a/c or GL Adjustment a/c (Actual Cost)

    4. Dr. WIP Control a/c (Standard Cost)


    Dr. or Cr. Material Usage Variance a/c
    Cr. Material Control a/c (Actual Cost)

    5. Dr. WIP Control a/c (Standard Cost)


    Dr. or Cr. Labour Efficiency Variance a/c
    Cr. Wages Control a/c (Actual Cost)

    6. Dr. WIP Control a/c (Standard Cost)


    Dr. or Cr. Production Volume Variance a/c
    Cr. Overhead Control a/c (Actual Cost)

    Disposition of Variances:
    a. Write off all variances to P&L or Cost of Sales.
    b. Distribute the variance pro rata to cost of sales, WIP, and finished goods stock.
    c. Write off quantity variances to P&L but price variance pro rata distribution as point “b”.

    ~3~

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