The document provides formulae for calculating key metrics in marginal costing, standard costing, and sales variance analysis. It defines concepts like contribution, profit volume ratio, break-even point, margin of safety, and provides formulae for calculating material, labor, variable overhead, and fixed overhead variances in standard costing. It also lists formulae for calculating sales value, price, volume, mix and quantity variances as well as sales margin variances.
The document discusses standard costing and variance analysis in manufacturing. It defines different types of production costs like direct material, direct labor, indirect costs. It explains how to calculate variances for material, labor, and overhead costs based on standard and actual quantities, prices, and hours. Variances indicate whether the difference between standard and actual costs is favorable or adverse. The document provides formulas to calculate variances for material usage, price, labor rate and efficiency, variable and fixed overhead rates and expenditures.
Standard costing is a system that evaluates a company's performance by comparing actual results to predetermined standards or budgets. It involves setting standards for costs and sales margins, collecting actual performance data, calculating variances between standards and actuals, analyzing variances to identify causes, and taking corrective actions. Variances can be calculated for materials, labor, overhead and sales to help control costs and motivate staff. Standard costing is useful for planning, valuation, control, and motivation.
This document discusses various costing concepts and techniques including:
BY Dinesh Makani
For Private Circulation Only
Page 9
ORIENTAL
Accounting
Cost & Management
1. The meaning and elements of cost, components of total cost including prime cost, factory cost, and total cost of production.
2. The meaning and importance of cost sheets for ascertaining cost, fixing selling prices, cost control, and managerial decision making.
3. Other costing methods like contract costing, process costing, and marginal costing - discussing their key principles, uses, and differences between job order costing and process costing.
1. Khalid Aziz teaches financial accounting and cost accounting courses for various qualifications including ICMAP stages 1-4, ICAP modules B and D, B.Com, BBA, MBA, and PIPFA.
2. He provides crash courses and fresh classes in financial accounting and cost accounting for individuals and groups.
3. Contact information is provided for Khalid Aziz located in Karachi, Pakistan.
This document provides instructions for performing a mass costing run in SAP. It describes running a costing for finished and semi-finished products valued at standard price. The process involves setting selection parameters to choose materials by type and plant, executing a BOM explosion, performing cost estimation, analyzing results, and marking and releasing standard prices. The full procedure takes the user through 63 steps to complete a costing run for multiple materials and plants at once.
The document summarizes standard costing and variance analysis.
Standard costing involves setting standard costs for direct materials, direct labor, and factory overhead based on expected efficiencies. Variances measure the difference between actual and standard costs. There are variances for direct material price and usage, direct labor rate and efficiency, and factory overhead which includes a controllable variance and volume variance. Variance analysis identifies reasons for differences to improve performance.
The document discusses product costing and cost estimation in SAP. It describes how standard costs are estimated based on input materials, activities, and overhead costs. It then outlines the tools used for cost estimation like costing variants, cost component splits, and cost estimates with or without quantity structures. Cost estimates are used to calculate the cost of goods manufactured and update standard prices in the material master record.
The document discusses standard costing and variance analysis in manufacturing. It defines different types of production costs like direct material, direct labor, indirect costs. It explains how to calculate variances for material, labor, and overhead costs based on standard and actual quantities, prices, and hours. Variances indicate whether the difference between standard and actual costs is favorable or adverse. The document provides formulas to calculate variances for material usage, price, labor rate and efficiency, variable and fixed overhead rates and expenditures.
Standard costing is a system that evaluates a company's performance by comparing actual results to predetermined standards or budgets. It involves setting standards for costs and sales margins, collecting actual performance data, calculating variances between standards and actuals, analyzing variances to identify causes, and taking corrective actions. Variances can be calculated for materials, labor, overhead and sales to help control costs and motivate staff. Standard costing is useful for planning, valuation, control, and motivation.
This document discusses various costing concepts and techniques including:
BY Dinesh Makani
For Private Circulation Only
Page 9
ORIENTAL
Accounting
Cost & Management
1. The meaning and elements of cost, components of total cost including prime cost, factory cost, and total cost of production.
2. The meaning and importance of cost sheets for ascertaining cost, fixing selling prices, cost control, and managerial decision making.
3. Other costing methods like contract costing, process costing, and marginal costing - discussing their key principles, uses, and differences between job order costing and process costing.
1. Khalid Aziz teaches financial accounting and cost accounting courses for various qualifications including ICMAP stages 1-4, ICAP modules B and D, B.Com, BBA, MBA, and PIPFA.
2. He provides crash courses and fresh classes in financial accounting and cost accounting for individuals and groups.
3. Contact information is provided for Khalid Aziz located in Karachi, Pakistan.
This document provides instructions for performing a mass costing run in SAP. It describes running a costing for finished and semi-finished products valued at standard price. The process involves setting selection parameters to choose materials by type and plant, executing a BOM explosion, performing cost estimation, analyzing results, and marking and releasing standard prices. The full procedure takes the user through 63 steps to complete a costing run for multiple materials and plants at once.
The document summarizes standard costing and variance analysis.
Standard costing involves setting standard costs for direct materials, direct labor, and factory overhead based on expected efficiencies. Variances measure the difference between actual and standard costs. There are variances for direct material price and usage, direct labor rate and efficiency, and factory overhead which includes a controllable variance and volume variance. Variance analysis identifies reasons for differences to improve performance.
The document discusses product costing and cost estimation in SAP. It describes how standard costs are estimated based on input materials, activities, and overhead costs. It then outlines the tools used for cost estimation like costing variants, cost component splits, and cost estimates with or without quantity structures. Cost estimates are used to calculate the cost of goods manufactured and update standard prices in the material master record.
Marginal costing is an alternative to absorption costing where only variable costs are charged as cost of sales. Fixed costs are treated as period costs. Closing inventories are valued at marginal cost. Contribution is the difference between sales revenue and marginal cost of sales, and it goes towards recovering fixed costs and generating profit. Break-even point is where contribution equals fixed costs and there is no profit or loss. Marginal costing focuses on distinguishing variable and fixed costs and uses marginal cost for inventory valuation and contribution for decision making.
Standard costing is a technique used to measure differences between actual and expected costs. A variance is the difference between standards and actual performance. Material, labor, and overhead variances can be classified by function, measurement, or result. Material variances include price, usage, mix, and yield variances. Labor variances include rate, efficiency, idle time, mix, and yield variances. Variances are either favorable if actual is lower than standard or adverse if actual exceeds standard. Examples show how to calculate variances for a manufacturing company.
Product costing and material ledger documentation was summarized as follows:
[1] Product costing allows companies to plan, track, and analyze product costs from raw materials procurement through production to the final cost of goods sold. The material ledger provides actual costing functionality to revalue inventory costs.
[2] Key aspects of product costing include establishing standard costs, performing costing runs to calculate costs, and updating material master prices. The costing structure includes activity types, cost elements, and cost centers.
[3] The material ledger allows companies to determine actual costs for materials and revalue inventory using methods like moving average or standard price valuation.
Standard costing is a technique that involves setting predetermined standards for costs and comparing them to actual costs. Standards are set for materials, labor, overhead and sales prices/margins. Variances between standards and actuals are analyzed to identify reasons for differences and take corrective actions. It helps management evaluate performance, control costs, set budgets and motivate staff. Some key advantages include cost control, delegation, efficiency improvements, and anticipating future costs and profits. Limitations include requiring technical skills and difficulty separating controllable vs. uncontrollable variances.
Standard costing involves setting predetermined expected costs for cost components like direct materials, direct labor, and factory overhead. Variances are calculated as the difference between actual and standard costs. This includes direct material, direct labor, and factory overhead variances. The direct material variance has a price and usage component. The factory overhead variance separates variable from fixed costs, with the controllable variance measuring variable cost efficiency and volume variance measuring fixed cost utilization.
This document provides an overview of standard costing and variance analysis techniques. It defines key terms like standard costing, variances, and variance analysis. It then explains how to calculate variances for materials, labor, sales, and overhead costs. Specific formulas are provided to derive price, quantity, mix, and other variances. Causes of variances like volume, price, efficiency are discussed. The purpose of variance analysis is to identify reasons for deviations from standards and take corrective actions.
This document describes how to automate the standard cost estimate process (CK40N) in SAP. It involves setting up a costing run with parameters for each step - selection, structure explosion, costing, analysis, marking, and release. These steps are configured to run in the background by activating background processing for each. Finally, the background jobs are scheduled and monitored to completion to automate the full CK40N process.
Case study material ledger implementation lessons learnedJohannes Le Roux
Cooper Tire implemented SAP Material Ledger as part of their initial SAP implementation in order to gain visibility into actual product costs and variances across production processes. Some key lessons learned included making the final decision to implement Material Ledger early, ensuring quality consultant support, and properly configuring for long-term requirements. Material Ledger provided benefits like impact of price variances and actual inventory costs but also challenges like increased data volumes and complexities. Cooper Tire's next steps include further integrating Material Ledger with SAP Profitability and Cost Management for improved cost and profitability reporting and analysis.
The presentation explains that how Standard costing works in a organization with a illustration problem with that clear the conclusion of Standard costing
The document discusses single period inventory ordering models. It provides an example of using historical demand data to determine multiple demand scenarios and their probabilities. It then calculates the expected profit for different order quantities by weighting the profit of each scenario by its probability. The optimal order quantity is the one that maximizes expected profit. It discusses how the optimal quantity relates to average demand and the risk-reward tradeoff of choosing higher or lower order quantities.
This chapter compares absorption costing and variable costing. Absorption costing treats fixed manufacturing overhead as a product cost, while variable costing treats it as a period cost. When production equals sales with no inventory changes, net income is the same under both methods. When production exceeds sales, absorption costing nets income is higher as fixed costs are deferred in inventory. When production is less than sales, absorption net income is lower as fixed costs in inventory are released. Over multiple periods with equal total production and sales, total net income is the same under both methods.
This document discusses absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed and variable costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Breakeven analysis determines the level of sales or production at which total revenue equals total costs. It can be used to calculate the breakeven point, target profit, margin of safety, and the impact of changes in costs, revenues, and profits.
The document discusses standard costing, which is a management accounting technique used to analyze variances. It outlines the steps in standard costing as setting standard costs, studying actual costs, comparing actuals to standards, analyzing variances, fixing responsibilities, and taking corrective action. The document also compares budgetary control to standard costing, noting their similarities like basing them on standards, and differences like standard costing focusing more on root causes of variances. It defines types of standards and provides examples of calculating material, labor, and overhead variances.
The document discusses standard costing and variance analysis techniques. It defines standard cost as a predetermined cost computed in advance based on cost factors. It explains that standard costing compares standard and actual costs to determine efficiency and take corrective action. Variances are the differences between standard and actual costs and are computed for materials, labor, and overhead. Variance analysis involves subdividing total variances to assign responsibility for performance differences. Formulas are provided for calculating different type of variances.
The document discusses product cost controlling and accounting. It covers topics like legal requirements for valuation of raw materials, work in process, and finished goods. It also discusses management requirements like supporting cost reduction and strategic/operational decision making. The document outlines different cost controlling methods like by order, period, or sales order. It provides examples of when each method would be used. It also describes components of cost controlling like cost object controlling, cost planning, actual costing, variance calculation, and period-end closing procedures.
The document discusses several accounting concepts including standard costs, variable costing, quality costs, and joint costs. Standard costs are estimates of what costs should be and are used to evaluate actual costs and variances. Variable costing separates fixed and variable costs to help with short-term decision making. Quality costs include prevention, appraisal, internal failure, and external failure costs associated with controlling and failing to control quality. Joint costs are allocated to joint products using methods like the sales value method which allocates costs based on relative sales values of each product.
Variable costing & absorption costingnaimhossain8
The document discusses variable costing and absorption costing. It provides examples of how to calculate costs and prepare income statements under each method. Variable costing includes only variable costs as product costs, while absorption costing includes both variable and fixed manufacturing costs. Absorption costing may result in higher reported income when production exceeds sales due to deferred fixed costs in inventory. Variable costing is generally used internally while absorption costing is used for external reporting in accordance with GAAP. The document also outlines some key advantages and limitations of each costing method.
Business Sectors & Its contribution in indiaRaushan Pandey
The document discusses the three main business sectors in India and their contributions to the economy. The primary sector involves activities like agriculture, forestry, fishing and mining. It accounts for over half of India's total employment but contributes only about 15% to GDP. The secondary sector is manufacturing which converts raw materials from the primary sector into finished goods. Industry growth slowed to just 0.4% in 2013-2014. The tertiary sector is services and makes up over half of India's GDP, with the country ranking 13th globally in services.
The document provides a list of over 60 great personalities from India in various fields who have contributed significantly in the 20th and 21st centuries. It includes brief descriptions of influential figures such as Dr. APJ Abdul Kalam, former President of India and known as the "Missile Man of India" for his work on developing ballistic missile and launch vehicle technology. It also profiles business leaders like Adi Godrej of the Godrej Group, Azim Premji of Wipro, and Anil Ambani chairman of Reliance Capital, as well as noted scientists, authors, sportspersons, and others who have made notable achievements and advanced their respective fields in India.
The document summarizes the main contributions of several quality gurus including W. Edwards Deming, Joseph Juran, Philip Crosby, Kaoru Ishikawa, Walter Shewhart, Armand Feigenbaum, and Genichi Taguchi. It discusses how Deming developed the "14 Points" and emphasized management's role in quality. It describes Juran's definition of quality and focus on cost of quality. It notes that Crosby coined the phrase "quality is free" and promoted zero defects. It also outlines Ishikawa's development of cause-and-effect diagrams and concept of the internal customer, as well as Taguchi's emphasis on design quality and development of robust design principles.
Marginal costing is an alternative to absorption costing where only variable costs are charged as cost of sales. Fixed costs are treated as period costs. Closing inventories are valued at marginal cost. Contribution is the difference between sales revenue and marginal cost of sales, and it goes towards recovering fixed costs and generating profit. Break-even point is where contribution equals fixed costs and there is no profit or loss. Marginal costing focuses on distinguishing variable and fixed costs and uses marginal cost for inventory valuation and contribution for decision making.
Standard costing is a technique used to measure differences between actual and expected costs. A variance is the difference between standards and actual performance. Material, labor, and overhead variances can be classified by function, measurement, or result. Material variances include price, usage, mix, and yield variances. Labor variances include rate, efficiency, idle time, mix, and yield variances. Variances are either favorable if actual is lower than standard or adverse if actual exceeds standard. Examples show how to calculate variances for a manufacturing company.
Product costing and material ledger documentation was summarized as follows:
[1] Product costing allows companies to plan, track, and analyze product costs from raw materials procurement through production to the final cost of goods sold. The material ledger provides actual costing functionality to revalue inventory costs.
[2] Key aspects of product costing include establishing standard costs, performing costing runs to calculate costs, and updating material master prices. The costing structure includes activity types, cost elements, and cost centers.
[3] The material ledger allows companies to determine actual costs for materials and revalue inventory using methods like moving average or standard price valuation.
Standard costing is a technique that involves setting predetermined standards for costs and comparing them to actual costs. Standards are set for materials, labor, overhead and sales prices/margins. Variances between standards and actuals are analyzed to identify reasons for differences and take corrective actions. It helps management evaluate performance, control costs, set budgets and motivate staff. Some key advantages include cost control, delegation, efficiency improvements, and anticipating future costs and profits. Limitations include requiring technical skills and difficulty separating controllable vs. uncontrollable variances.
Standard costing involves setting predetermined expected costs for cost components like direct materials, direct labor, and factory overhead. Variances are calculated as the difference between actual and standard costs. This includes direct material, direct labor, and factory overhead variances. The direct material variance has a price and usage component. The factory overhead variance separates variable from fixed costs, with the controllable variance measuring variable cost efficiency and volume variance measuring fixed cost utilization.
This document provides an overview of standard costing and variance analysis techniques. It defines key terms like standard costing, variances, and variance analysis. It then explains how to calculate variances for materials, labor, sales, and overhead costs. Specific formulas are provided to derive price, quantity, mix, and other variances. Causes of variances like volume, price, efficiency are discussed. The purpose of variance analysis is to identify reasons for deviations from standards and take corrective actions.
This document describes how to automate the standard cost estimate process (CK40N) in SAP. It involves setting up a costing run with parameters for each step - selection, structure explosion, costing, analysis, marking, and release. These steps are configured to run in the background by activating background processing for each. Finally, the background jobs are scheduled and monitored to completion to automate the full CK40N process.
Case study material ledger implementation lessons learnedJohannes Le Roux
Cooper Tire implemented SAP Material Ledger as part of their initial SAP implementation in order to gain visibility into actual product costs and variances across production processes. Some key lessons learned included making the final decision to implement Material Ledger early, ensuring quality consultant support, and properly configuring for long-term requirements. Material Ledger provided benefits like impact of price variances and actual inventory costs but also challenges like increased data volumes and complexities. Cooper Tire's next steps include further integrating Material Ledger with SAP Profitability and Cost Management for improved cost and profitability reporting and analysis.
The presentation explains that how Standard costing works in a organization with a illustration problem with that clear the conclusion of Standard costing
The document discusses single period inventory ordering models. It provides an example of using historical demand data to determine multiple demand scenarios and their probabilities. It then calculates the expected profit for different order quantities by weighting the profit of each scenario by its probability. The optimal order quantity is the one that maximizes expected profit. It discusses how the optimal quantity relates to average demand and the risk-reward tradeoff of choosing higher or lower order quantities.
This chapter compares absorption costing and variable costing. Absorption costing treats fixed manufacturing overhead as a product cost, while variable costing treats it as a period cost. When production equals sales with no inventory changes, net income is the same under both methods. When production exceeds sales, absorption costing nets income is higher as fixed costs are deferred in inventory. When production is less than sales, absorption net income is lower as fixed costs in inventory are released. Over multiple periods with equal total production and sales, total net income is the same under both methods.
This document discusses absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed and variable costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Breakeven analysis determines the level of sales or production at which total revenue equals total costs. It can be used to calculate the breakeven point, target profit, margin of safety, and the impact of changes in costs, revenues, and profits.
The document discusses standard costing, which is a management accounting technique used to analyze variances. It outlines the steps in standard costing as setting standard costs, studying actual costs, comparing actuals to standards, analyzing variances, fixing responsibilities, and taking corrective action. The document also compares budgetary control to standard costing, noting their similarities like basing them on standards, and differences like standard costing focusing more on root causes of variances. It defines types of standards and provides examples of calculating material, labor, and overhead variances.
The document discusses standard costing and variance analysis techniques. It defines standard cost as a predetermined cost computed in advance based on cost factors. It explains that standard costing compares standard and actual costs to determine efficiency and take corrective action. Variances are the differences between standard and actual costs and are computed for materials, labor, and overhead. Variance analysis involves subdividing total variances to assign responsibility for performance differences. Formulas are provided for calculating different type of variances.
The document discusses product cost controlling and accounting. It covers topics like legal requirements for valuation of raw materials, work in process, and finished goods. It also discusses management requirements like supporting cost reduction and strategic/operational decision making. The document outlines different cost controlling methods like by order, period, or sales order. It provides examples of when each method would be used. It also describes components of cost controlling like cost object controlling, cost planning, actual costing, variance calculation, and period-end closing procedures.
The document discusses several accounting concepts including standard costs, variable costing, quality costs, and joint costs. Standard costs are estimates of what costs should be and are used to evaluate actual costs and variances. Variable costing separates fixed and variable costs to help with short-term decision making. Quality costs include prevention, appraisal, internal failure, and external failure costs associated with controlling and failing to control quality. Joint costs are allocated to joint products using methods like the sales value method which allocates costs based on relative sales values of each product.
Variable costing & absorption costingnaimhossain8
The document discusses variable costing and absorption costing. It provides examples of how to calculate costs and prepare income statements under each method. Variable costing includes only variable costs as product costs, while absorption costing includes both variable and fixed manufacturing costs. Absorption costing may result in higher reported income when production exceeds sales due to deferred fixed costs in inventory. Variable costing is generally used internally while absorption costing is used for external reporting in accordance with GAAP. The document also outlines some key advantages and limitations of each costing method.
Business Sectors & Its contribution in indiaRaushan Pandey
The document discusses the three main business sectors in India and their contributions to the economy. The primary sector involves activities like agriculture, forestry, fishing and mining. It accounts for over half of India's total employment but contributes only about 15% to GDP. The secondary sector is manufacturing which converts raw materials from the primary sector into finished goods. Industry growth slowed to just 0.4% in 2013-2014. The tertiary sector is services and makes up over half of India's GDP, with the country ranking 13th globally in services.
The document provides a list of over 60 great personalities from India in various fields who have contributed significantly in the 20th and 21st centuries. It includes brief descriptions of influential figures such as Dr. APJ Abdul Kalam, former President of India and known as the "Missile Man of India" for his work on developing ballistic missile and launch vehicle technology. It also profiles business leaders like Adi Godrej of the Godrej Group, Azim Premji of Wipro, and Anil Ambani chairman of Reliance Capital, as well as noted scientists, authors, sportspersons, and others who have made notable achievements and advanced their respective fields in India.
The document summarizes the main contributions of several quality gurus including W. Edwards Deming, Joseph Juran, Philip Crosby, Kaoru Ishikawa, Walter Shewhart, Armand Feigenbaum, and Genichi Taguchi. It discusses how Deming developed the "14 Points" and emphasized management's role in quality. It describes Juran's definition of quality and focus on cost of quality. It notes that Crosby coined the phrase "quality is free" and promoted zero defects. It also outlines Ishikawa's development of cause-and-effect diagrams and concept of the internal customer, as well as Taguchi's emphasis on design quality and development of robust design principles.
Henri Fayol was a French mining engineer and management theorist who developed one of the earliest comprehensive theories of management in the early 20th century. He viewed management as a professional discipline and proposed universal principles for management, including administrative management theory and principles of management. While his work provided foundational concepts for the field of management, limitations include that his theories were based on intuition rather than empirical evidence and may be too general for today's complex organizations.
The document discusses the implementation of total quality management (TQM). It states that TQM implementation is led by top management and involves applying the right tools for continuous quality improvement. These tools include statistical process control, quality function deployment, and total preventive maintenance. TQM also relies on techniques like quality circles and total employee involvement to encourage problem solving at lower levels. Key quality management thinkers like Deming, Juran, and Taguchi influenced the development of TQM through their work in statistics, management, and execution. The document outlines the planning, doing, studying, and acting (PDSA) cycle used for continuous TQM implementation and improvement.
Henri Fayol was a French mining engineer and management theorist. He is considered the father of modern management. In his 1916 book, he proposed the six primary functions of management as planning, organizing, commanding, coordinating, and controlling. He also outlined 14 principles of management including division of work, authority and responsibility, and discipline. Fayol viewed management as a profession and offered universal prescriptions for managers. While his work was influential, it has also been criticized for being too general and not empirical. Overall, Fayol made a significant early contribution to defining management theory.
The document profiles several famous Indian entrepreneurs including Narayana Murthy of Infosys, Shiv Nadar of HCL, Tulsi Tanti of Suzlon Energy, Rahul Bajaj of Bajaj Group, Dr. Pratap Reddy of Apollo Hospitals, Kiran Mazumdar Shaw of Biocon, Naresh Goyal of Jet Airways, Anil Dhirubhai Ambani, Azim Premji of Wipro, Ekta Kapoor, Mallika Srinivasan of TAFE, Rashmi Sinha of SlideShare, Sanjeev Bikhchandani of Naukri.com, Sarathbabu Elumal
The document provides an overview of the Tata Group, a large Indian multinational conglomerate. It discusses the group's history dating back to 1868, its expansion into various sectors such as engineering, energy, chemicals, and consumer products. It also mentions some of the group's acquisitions, awards, innovation initiatives, philanthropic activities, and controversies surrounding land acquisition. The Tata Group operates over 80 companies and is India's largest private employer with over 400,000 employees worldwide.
This powerpoint presentation defines entrepreneurship and discusses its history and modern applications. It begins by defining an entrepreneur as someone who organizes and manages a business while taking on financial risk. It notes that agricultural students have been involved in entrepreneurship since the early 20th century through programs like raising livestock and growing crops. Today, agricultural entrepreneurship can involve many diverse activities beyond farming like custom harvesting or operating a small engine repair service. The presentation concludes by discussing characteristics of successful entrepreneurs and different types like social and lifestyle entrepreneurs.
This document provides an overview of standard costing and variance analysis. It defines key terms like standard costs, variances, and different types of variances. The document outlines the advantages and disadvantages of standard costing. It then provides details on different types of variances including sales, direct material, direct labor, variable overhead, and fixed overhead variances. An illustrative example is included to demonstrate calculating variances for a company's widget and gadget production.
Standard costing is a system that evaluates a company's performance by comparing actual results to predetermined standards or budgets. It involves setting standards for costs and sales margins, collecting actual performance data, calculating variances between standards and actuals, analyzing variances to identify causes, and taking corrective actions. Variances can be calculated for materials, labor, variable overhead, fixed overhead, and sales. Comparing actual results to standards allows management to measure efficiency and make improvements.
The document classifies variances into material cost, price, usage, mix, and yield variances. It also discusses labor cost, rate, efficiency, idle time, mix, and yield variances. Finally, it covers variable and fixed overhead variances. Material and labor variances are calculated using standard quantities/rates and actual quantities/rates. Variable overhead variances have expenditure/budget and efficiency components. Fixed overhead variance is the difference between standard overhead recovered and actual overhead incurred.
The document classifies variances into material cost, price, usage, mix, and yield variances. It also discusses labor cost, rate, efficiency, idle time, mix, and yield variances. Finally, it covers variable and fixed overhead variances. Material and labor variances are calculated using standard quantities/rates and actual quantities/rates. Variable overhead variances have expenditure/budget and efficiency components. Fixed overhead variance is the difference between standard overhead recovered and actual overhead incurred.
This document discusses various types of cost and sales variances that can occur in standard costing. It defines direct material, direct labor, and overhead variances, explaining how to calculate variances for material price and usage, labor rate and efficiency, and fixed and variable overhead costs. Sales variances are also covered, including calculations for price, volume, mix, and quantity variances based on both turnover and profit. Formulas are provided for computing each variance.
This document discusses various types of cost and sales variances that can occur in standard costing. It defines direct material, direct labor, and overhead variances, explaining how to calculate variances for material price and usage, labor rate and efficiency, and fixed and variable overhead costs. Sales variances are also covered, distinguishing between variances calculated based on turnover versus profit, and how price, volume, mix, and quantity variances are derived in each case. Formulas are provided for computing each variance.
The document discusses concepts related to marginal costing including:
1) The definition of marginal cost as the change in total cost from producing one additional unit of output.
2) Formulas used in marginal costing like marginal cost, contribution, profit volume ratio, and break-even point.
3) The advantages of using marginal costing and break-even analysis for managerial decision making regarding production levels and product profitability.
Accounting Formulas, Chart of Accounts, Dr/Cr RuleAbrar Malik
This document contains formulas for various types of costing and accounting calculations including:
- Breakeven analysis formulas for calculating breakeven point by quantity, value, and contribution sales ratio.
- Overhead costing formulas for calculating cost unit rates, direct material/labor cost percentage rates, predetermined absorption rates, and more.
- Materials, labor, contract, process, and standard costing formulas for calculating economic order quantity, stock turnover, labor turnover rate, profit on a contract, equivalent production, and variances for materials, labor, overhead, and sales.
- Formulas are also provided for standard marginal costing techniques with no volume variance for fixed overhead and a sales margin volume variance.
Here are the steps to calculate labor variance:
1. Total labor variance is calculated as actual hours x actual rate minus standard hours x standard rate.
2. Labor variance is divided into two variances: labor rate variance and labor hours variance.
3. Labor rate variance is calculated as actual hours x (actual rate - standard rate).
4. Labor hours variance is calculated as standard rate x (actual hours - standard hours).
5. If labor hours variance is unfavorable, it means actual hours worked were more than standard hours set.
Thank you for the practice questions. Please let me know if you need any clarification or have additional questions!
This document provides a tutorial on standard costing and variance analysis techniques. It defines key terms like actual cost, standard cost, quantity and price variances. Formulas are provided for calculating variances for materials, labor, variable overhead and fixed overhead. A sample problem demonstrates calculating variances for materials and labor. Another sample problem demonstrates calculating variances for variable and fixed overhead.
This document provides an overview of cost-volume-profit (CVP) analysis. It defines key CVP terms like marginal cost, contribution margin, break-even point, and margin of safety. An example is provided to illustrate how to calculate break-even point using both the equation method and contribution margin method. The objectives, assumptions and limitations of CVP analysis are also discussed. CVP analysis determines how costs and sales volume affect profitability and is useful for decision making.
The document discusses break-even analysis, which is used to determine the sales volume needed for a business to start making a profit. It defines key terms like fixed costs, variable costs, unit price, total revenue, and break-even point. An example is given showing how to calculate break-even point using fixed costs of Rs. 30,000, variable costs of Rs. 7 per unit, and a selling price of Rs. 12 per unit. The break-even point in this example is 6,000 units. Factors that influence break-even point and limitations of break-even analysis are also outlined.
The document presents a slideshow on marginal costing and absorption costing. It defines marginal cost as the change in total cost from producing one additional unit. Marginal costing focuses on variable costs, treating fixed costs as period costs. Absorption costing treats all costs as product costs. The presentation calculates profit under both methods using an example and highlights the key differences between the two approaches. It concludes that while absorption costing is a total cost technique, marginal costing is useful for management decision making, cost control and profit planning.
This document summarizes key concepts around flexible budgets, overhead cost management, and activity-based budgeting from chapter 17:
1) A flexible budget accounts for a range of activity levels rather than a single planned level like a static budget. It allows comparison of actual costs to budgeted costs at the actual level of activity.
2) Flexible budgets are based on an activity driver like machine hours or units of output rather than inputs. This allows calculation of variable overhead rates and variances between actual and budgeted overhead costs.
3) Variance analysis separates flexible budget variances into variable overhead spending and efficiency variances and fixed overhead budget and volume variances to help management control overhead costs.
This document provides an overview of marginal costing and cost-volume-profit (CVP) analysis. It defines key terms like marginal cost, contribution, fixed and variable costs. It explains the differences between marginal and absorption costing approaches. The objectives and concepts of CVP analysis are outlined, including break-even point, margin of safety, contribution ratio and angle of incidence. Formulas for calculating items like break-even sales, break-even point and composite break-even point are presented. Advantages and limitations of marginal costing are listed.
Variance analysis involves computing the differences between actual and standard costs. It has two phases - computation of individual variances and determining the causes of variances. Variances are classified as material, labor, and overhead. Material variance is caused by differences in actual and standard quantities and prices of materials. Labor variances can be due to mix of labor grades or wage rates. Overhead variances arise from differences between actual and standard overhead amounts. Variance analysis helps identify reasons for deviations from standards and improve performance.
1. The document discusses various types of standard costing variances for materials, labor, and overhead. It provides formulas to calculate 22 different variances including material cost, price, quantity, and mix variances as well as labor cost, rate, efficiency, and mix variances.
2. Overhead variances covered include variable and fixed overhead cost, expenditure, efficiency, volume, capacity, revised capacity, and calendar variances. Formulas use standard and actual quantities, prices, rates, and overhead amounts to calculate the variances.
3. Short summaries are provided for each variance along with reconciliation formulas showing the relationships between different variances.
Ca chap 13 standard costing&variance analysis(2)DSDEVDA
This document discusses standard costing and variance analysis techniques. Standard costing involves setting predetermined standard costs that products should attain under given conditions. Variances measure the difference between actual and standard costs/results and can be classified in various ways, including functionally, based on measurement, results, and controllability. Key variances include material, labor, variable and fixed overhead variances. Standard costing is used for cost control, pricing, performance evaluation, and management objectives.
1. COSTING FORMULAE
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MARGINAL COSTING
STATEMENT OF PROFIT
Particulars Amount
Sales ***
Less:-Variable cost ***
Contribution ***
Less:- Fixed cost ***
Profit ***
1. Sales = Total cost + Profit = Variable cost + Fixed cost + Profit
2. Total Cost = Variable cost + Fixed cost
Variable cost = It changes directly in proportion with volume
1. Variable cost Ratio = {Variable cost / Sales} * 100
2. Sales – Variable cost = Fixed cost + Profit
3. Contribution = Sales * P/V Ratio
PROFIT VOLUME RATIO [P/V RATIO]:-
1. {Contribution / Sales} * 100
2. {Contribution per unit / Sales per unit} * 100
3. {Change in profit / Change in sales} * 100
4. {Change in contribution / Change in sales} * 100
BREAK EVEN POINT [BEP]:-
1. Fixed cost / Contribution per unit [in units]
2. Fixed cost / P/V Ratio [in value] (or) Fixed Cost * Sales value per unit
1. (Sales – Variable cost per unit)
MARGIN OF SAFETY [MOP]
1. Actual sales – Break even sales
2. Net profit / P/V Ratio
3. Profit / Contribution per unit [In units]
3. Sales unit at Desired profit = {Fixed cost + Desired profit} / Cont. per unit
4. Sales value for Desired Profit = {Fixed cost + Desired profit} / P/V Ratio
2. COSTING FORMULAE
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5. At BEP Contribution = Fixed cost
6. Indifference Point = Point at which two Product sales result in same amount of profit
= Change in fixed cost
(in units)
Change in variable cost per unit
= Change in fixed cost (in units)
Change in contribution per unit
=Change in Fixed cost
(Rs.)
Change in P/Ratio
= Change in Fixed cost (Rs.)
Change in Variable cost ratio
7. Shut down point = Point at which each of division or product can be closed
= Maximum (or) Specific (or) Available fixed cost
P/V Ratio (or) Contribution per unit
If sales are less than shut down point then that product is to shut down.
Note
1. When comparison of profitability of two products if P/V Ratio of one product is greater
than P/V Ratio of other Product then it is more profitable.
2. In case of Indifference point if, (Sales Indifference point)
a. Select option with higher fixed cost (or) select option with lower fixed cost.
Variable cost Ratio =
Change in total cost
X100
Change in total sales
3. COSTING FORMULAE
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STANDARD COSTING
MATERIAL
1. Material cost variance = SP * SQ – AP * AQ
2. Material price variance = SP * AQ–AP * AQ
3. Material usage variance = SP * SQ – SP * AQ
4. Material mix variance = SP * RSQ – SP * AQ
5. Material yield variance = SP * SQ –SP * RSQ
LABOUR
1. Labour Cost variance = SR*ST – AR*AT
2. Labour Rate variance = SR*AT (paid) – AR*AT
3. Labour Efficiency variance = SR*ST – SR*AT (paid)
4. Labour mix variance = SR*RST – SR*AT(worked)
5. Labour Idle time variance = SR*AT(worked) – SR*AT (paid)
VARIABLE OVERHEADS COST VARIANCE
Variable Overheads Cost Variance = SR * ST – AR * AT
Variable Overheads Expenditure Variance = SR * AT – AR * AT
Variable Overheads Efficiency Variance = SR * ST – SR * AT
Where,
SR =Standard rate/hour
Budgeted variable OH
Budgeted Hours
FIXED OVERHEADS COST VARIANCE
Fixed Overheads Cost Variance = SR*ST– AR*AT(paid)
Fixed Overheads Budgeted Variance = SR*BT – AR*AT(paid)
Fixed Overheads Efficiency Variance = SR*ST– SR*AT(worked)
Fixed Overheads Volume Variance = SR*ST – SR*BT
Fixed Overheads Capacity Variance = SR*AT(worked)– SR*RBT
Fixed Overheads Calendar Variance = SR*RBT – SR*BT
SALES VALUE VARIANCE
Sales value variance = AP*AQ–Budgeted Price*BQ
Sales price variance = AP*AQ – BP*AQ
Sales volume variance = BP*AQ – Budgeted Price*BQ
Sales mix variance = BP*AQ – BP*Budgeted mix
Sales quantity variance = BP*Budgeted mix – Budgeted Price*BQ
4. COSTING FORMULAE
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Note:-
Actual margin per unit (AMPU) = Actual sale price – selling cost per unit
Budgeted margin per unit (BMPU) = Budgeted sale price – selling price per unit
SALES MARGIN VARIANCE
Sales margin variance = AMPU*AQ – BMPU*BQ
Sales margin price variance = AMPU*AQ – BMPU*AQ
Sales margin volume variance = BMPU*AQ – BMPU*BQ
Sales margin mix variance = BMPU*AQ – BMPU*Budgeted mix
Sales margin quantity variance = BMPU*Budgeted mix – BMPU*BQ
CONTROL RATIO
Efficiency Ratio =
Standard hours for actual output
X 100
Actual hours worked
Verification: Activity Ratio = Efficiency * Capacity Ratio
SHORT WORDS USED IN THE FORMULAE
SC = Standard Cost, AC = Actual Cost
SP = Standard Price, SQ = Standard Quantity
AP = Actual Price, AQ = Actual Quantity
AY = Actual Yield, SY = Standard Yield
RSQ = Revised Standard Quantity, SR = Standard Rate,
ST = Standard Time AR = Actual Rate,
AT = Actual Time RST = Revised Standard Time,
BP = Budgeted Price, BQ = Budgeted Quantity
RBT = Revised Budgeted Time BMPU = Budgeted Margin per Unit
AMPU = Actual Margin per Unit
Capacity Ratio =
Actual Hours Worked
X 100
Budgeted Hours
Activity Ratio =
Actual Hours Worked
X 100
Budgeted Hours
5. COSTING FORMULAE
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STANDARD COSTING
MATERIAL
Material cost variance = SC – AC = (SQ*AQ) – (AQ*AP)
Material price variance = AQ (SP – AP)
Material usage variance = SP (SQ – AQ)
Material mix variance = SP (RSQ – AQ)
Material yield variance = (AY – SY for actual input)
Standard material cost per unit of output
Material revised usage variance
(calculated instead of material yield variance) =
[standard quantity – Revised standard for
actual output quantity ] * Standard price
LABOUR
Labour Cost variance = SC – AC = (SH*SR) – (AH*AR)
Labour Rate variance = AH (SR - AR)
Labour Efficiency or time variance = SR (SH –AH)
Labour Mix or gang composition Variance = SR(RSH-AH)
Labour Idle Time Variance = Idle hours * SR
Labour Yield Variance = [Actual Output – Standard output for actual
input] X Standard labour cost/unit of output
Labour Revised Efficiency Variance
(instead of LYV) =
[Standard hours for actual output – Revised
standard hours] X Standard rate
Notes:-
1. LCV = LRV + LMV + ITV + LYV
2. LCV = LRV + LEV + ITV
3. LEV = LMV, LYV (or) LREV
OVERHEAD VARIANCE
(GENERAL FOR BOTH VARIABLE AND FIXED)
Standard overhead rate (per hour) =
Budgeted Overheads
Budgeted Hours
Standard OH = Standard hrs for actual output X Standard OH rate per hour
Absorbed OH = Actual hrs X Standard OH rate per hour
Standard hours for actual output =
Budgeted hours
X Actual Output
Budgeted output
6. COSTING FORMULAE
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Budgeted OH = Budgeted hrs X Standard OH rate per hour
Actual OH = Actual hrs X Actual OH rate per hour
OH cost variance = Absorbed OH – Actual OH
VARIABLE OVERHEADS VARIANCE
Variable OH Cost Variance = Standard OH – Actual OH
Variable OH Exp. Variance = Absorbed OH – Actual Variable OH
Variable OH Efficiency
Variance
= Standard OH – Absorbed OH
= Standard hours for Actual output hours X Standard rate for
variable OH
FIXED OVERHEADS VARIANCE
Fixed OH Cost Variance = Standard OH – Actual OH
Fixed OH expenditure variance = Budgeted OH – Actual OH
Fixed OH Efficiency Variance =
Standard OH (units based) – Absorbed OH
(Hours based)
Fixed OH Volume Variance =
Standard OH – Budgeted OH
[Standard hrs for – Budgeted actual output hours ] X
Standard rate
Fixed OH capacity variance = Absorbed OH–Budgeted OH
Fixed OH Calendar Variance = [Revised budgeted hrs – Budgeted hrs] X Standard rate/hrs
When there is calendar variance capacity variance is calculated as follows:-
Capacity variance = [Actual hours – Revised Budgeted hrs] X Standard rate/hour
VERIFICATION
Variable OH cost variance = Variable OH Exp Variance + Variable OH Efficiency variance
Fixed OH cost variance = Fixed OH Exp Variance + Fixed OH volume Variance
Fixed OH volume variance = Fixed OH Eff variance + Capacity variance + Calendar Vari
7. COSTING FORMULAE
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SALES VARIANCES
TURNOVER METHOD (OR) SALES VALUE METHOD:-
Sales value variance = Actual Sales – Budgeted Sales
Sales price variance = [Actual Price – Standard price] X Actual quantity
= Actual sales – standard sales
Sales volume variance = [Actual-Budgeted quantity] X Standard price
= Standard sales – Budgeted sales
Sales mix variance = [Actual quantity – Revised standard quantity] * Standard Price
= Standard sales – Revised sales
Sales quantity variance = [Revised standard variance – Budgeted quantity] X Standard price
= Revised Standard sales – Budgeted sales
PROFIT METHOD
Total sales margin variance = (Actual Profit–Budgeted price)
= {Actual quantity * Actual profit p. u} – {Budgeted quantity * Standard profit p. u}
Sales margin price variance=Actual profit–Standard profit
= {Actual Profit p. u – Standard profit p. u} * Actual quantity of sales
Sales margin volume variance = Standard profit – Budgeted Profit
= {Actual quantity – Budgeted quantity} * Standard profit per unit
Sales margin mix variance = Standard profit – Revised Standard profit
= {Actual quantity – Revised standard quantity} * Standard profit per unit
Sales margin quantity variance = Revised standard profit – Budgeted profit
= {Revised standard quantity – Budgeted quantity} * Standard profit per unit
FIXED OVERHEAD VARIANCE
Standard OH = Standard hrs for actual output * Standard OH rate per hour
Absorbed OH = Actual hrs * Standard OH rate per hour
Budgeted OH = Budgeted hrs * Standard OH rate per hour
Actual OH = Actual hrs * Actual OH rate per hour
Revised Budgeted Hour = Actual Days * Budgeted Hours per day
(Expected hours for actual days worked)
When Calendar variance is asked then for capacity variance Budgeted Overhead is
(Budgeted days * Standard OH rate per day)
Revised Budgeted Hr (Budgeted hrs for actual days) = Actual days * Budgeted hrs per day
8. COSTING FORMULAE
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SALES VARIANCES
Sales value variance = Actual Sales – Budgeted Sales
SALES MARGIN VARIANCES
Total sales margin variance = (Actual Profit–Budgeted price)
= {Actual quantity * Actual profit per unit}- {Budgeted
quantity * Standard profit per unit}
RECONCILIATION
Reconciliation statement is prepared to reconcile the actual profit with the budgeted
profit
PARTICULARS FAVORABLE UNFAVORABLE (RS)
Budgeted Profit :
Add Favorable variances
Less Unfavorable variances
Sales Variances :
Sales price variance
Sales mix variance
Sales quantity variance
Cost variance :-
Material :
Cost variance
Usage variance
Mix variance
Labour :
Rate variance
Mix variance
Efficiency variance
Idle time variance
Fixed overhead variance :
Expenditure variance
Efficiency variance
Fixed overhead variance :
Expenditure variance
Efficiency variance
Capacity variance
Calendar variance