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Standard cost, labor & material variance
1. What are Standards?
“Standard is a benchmark or norm for
measuring the performance”
For example Doctor evaluate your weight using
standard for individuals for your age, height and
gender.
2. Managerial Accounting &
Standard
Standards are widely use in managerial
accounting where they relate to quantity
and cost (price) of inputs used in
manufacturing goods or providing
services.
Quantity standard specify how much
input should be used to make a product
or provide a service.
Cost (price) standard specify how
much should be paid for each unit of
input.
3. Variance Analysis Cycle
Identify questions
Analyze Variance
Receive Explanation Take Corrective
Measure
Conduct operations
Specific standard
4. Standard Costing System
Manufacturing company often have highly
developed standard costing system. In which
standard for direct material, direct labor, and
overhead are created for each product. Standard
card shows the standard quantities and costs of
inputs required to produce a unit of a specific
product.
5. Setting standard Cost
In setting the standards, manufacturing
company setting standards it might include
production workers, accountant, purchasing
managers, engineers, production
supervisor, line manager and past records
of purchase price and inputs. That can be
helpful in setting the standards.
However the standard should be designed
to encourage future operations.
