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Section 2.3.1 Standard Costing

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16 views64 pages

Section 2.3.1 Standard Costing

Uploaded by

Minh Châu Nguyễn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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STANDAR

D
COSTING

3.1 Prepared by: T. Sheryl Mae Felias-


Balazo
CONSISTENCY
MONEY
MEASUREMENT
STANDARD

‘a level of
quality’
QUALITY
COSTING
‘the way the
entrepreneur
calculates or works
out how much each
individual product
(goods or service)
costs to produce or
sell’
standard
costing
- technique
- what a resource should
cost
- how long a process
should take
- compares with actual
happenings
comparison

- able to see how efficient


they are
- calculating variance
variance

- a difference between the


standard and what
actually happened
standards set
for:
- material costs
- amount of material that
should be used
- labour costs
- amount of time that a
process should take
standard
costing

- common in
manufacturing business
important uses:
1) control device
2) budget-setting
process
3) quoting for a job
4) targets and
motivation
5) decision-making
6) costs for inventory
types of
standard:
1. Ideal Standard

2. Attainable Standard

3. Basic Standard
1. Ideal Standard
- no breakdown of
machinery
- 100% efficiency
- no idle/waiting time
- no wastage
- ideal price will always
paid

:. usually unrealistic
2. Attainable Standard

- ideal conditions will not


exist
- wastage of materials
- not 100% efficient
- breakdown

:. realistic
3. Basic Standard

- standard is set
- never reviewed

:. standards should be
constantly reviewed and
amended
Calculating
standard unit
cost
setting standards:

- technical standards:
• how much material
should be used
• how much time should
be taken
setting standards:

- cost standards:
• price of materials
• labour rate
standard cost card
- one per product
- include:
• quantity and price of each
material to be used
• time and rate of each
grade of direct labour to
be used
• basis and amount of
overhead recovery
Setting
standard
s
setting
standards

DIRECT DIRECT
MATERIAL LABOUR
setting
standards
amount of amount of
direct material direct labour
used used

cost of direct cost of direct


material labour
product
specifications

manufacturing
process

amount of
direct
material
used
quality of past data of
direct labour wastage

quality of
material
supplier
price lists

amounts of
discount

cost of
direct
inflation
material
rates & price
exchange increase
rates
price
changes:
season
setting
standards
amount of amount of
direct material direct labour
used used

cost of direct cost of direct


material labour
manufacturing
process

changes in
manufacturing
process

amount of
direct
labour used
past efficiency
levels

quality of
direct labour
current
payroll
records
need for
overtime
rates
cost of
direct
labour
agreed
future wage
increase
grade of
direct
labour
ADVANTAGES

- managers are able to


control the business more
effectively
- increased motivation of
staff having realistic and
achievable targets
- budgets and forecasts can
be prepared more easily
DISADVANTAGES

- standards must be
reviewed regularly and
amended
- time-consuming and costly
- standard costs are most
suitable for businesses
with established repetitive
process
Standard Hours
Standard hour
- measure of a quantity of
work undertaken in one
hour

- produce one product

- produce more than one


product
= total standard hours of
variance

- a difference between the


standard and what
actually happened
variance
analysis

FAVOURABLE ADVERSE
VARIANCE VARIANCE
FAVOURABLE
VARIANCE
actual cost < standard
cost

actual revenue > standard


revenue

POSITIVE EFFECT!
ADVERSE
VARIANCE
actual cost > standard
cost

actual revenue < standard


revenue

NEGATIVE EFFECT!
SUCCESSFUL
VARIANCE
ANALYSIS
BUDGETED PRODUCTION

flexed

ACTUAL PRODUCTION
TYPES OF
VARIANC
ES
TYPES OF
VARIANCES

FIXED DIRECT
OVERHEAD LABOUR COST
VARIANCES VARIANCES

DIRECT
MATERIAL SALES
COST VARIANCES
VARIANCES
FIXED DIRECT
OVERHEAD LABOUR COST
VARIANCES VARIANCES

DIRECT
MATERIAL SALES
COST VARIANCES
VARIANCES
direct material total
variance

= Standard Cost – Actual Cost


= (SQ * SP) – (AQ * AP)

:. more or less material used


:. higher or lower price being
paid for the quantity of the
material
direct material total
variance
Subdivided:
1. Direct material price
variance
= AQ (SP-AP)

2. Direct material usage


variance
= SP (SQ-AQ)
FIXED DIRECT
OVERHEAD LABOUR COST
VARIANCES VARIANCES

DIRECT
MATERIAL SALES
COST VARIANCES
VARIANCES
direct labour total
variance

= Standard Cost – Actual Cost


= (SR * SH) – (AR * AH)

:. more or less labour used


:. higher or lower price being
paid the hours of labour
direct labour total
variance

Subdivided:
1. Direct labour rate variance
= AH (SR-AR)

2. Direct labour efficiency


variance
= SR (SH-AH)
PROCEED
TO CB PAGE
423
FIXED DIRECT
OVERHEAD LABOUR COST
VARIANCES VARIANCES

DIRECT
MATERIAL SALES
COST VARIANCES
VARIANCES
sales total variance

= Actual Sales – Budgeted Sales


= (AV * AP) – (BV * BP)
sales total variance

Subdivided:
1. Sales volume variance
= SSP (AS-SS)

2. Sales price variance


= AS (ASP-SSP)
FIXED DIRECT
OVERHEAD LABOUR COST
VARIANCES VARIANCES

DIRECT
MATERIAL SALES
COST VARIANCES
VARIANCES
fixed overhead total
variance

= (ASH * FOAR) – AFO


fixed overhead total
variance
Subdivided:
1. Fixed overhead
expenditure variance
= BE - AE

2. Fixed overhead volume


variance
= SFOAR (AP-BP)
fixed overhead volume
variance
Subdivided:
1. Fixed overhead efficiency
variance
= SFOAR (AHO-SHO)

2. Fixed overhead capacity


variance
= SFOAR (AHP-SHP)
PROCEED
TO CB PAGE
428

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