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.

1. STANDARD COST
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2. 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
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3. 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
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4. 1. Helps management in planning, co-
ordination, motivation, control.
2. Measurement of efficiency.
3. Formulation of policies.
4. Cost reporting.
5. Inventory valuation.
ADVANTAGES
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5. 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
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6. 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
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7. TYPES OF VARIANCE
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8. • 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
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9. • 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
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10. MATERIAL YIELD VARIANCE
= (STD LOSS ON ACTUAL INPUT –
ACTUAL LOSS ON ACTUAL
INPUT) X STD AVERAGE PRICE / UNIT
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11. • 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
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12. • 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
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13. • 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
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14. FIXED OVERHEAD EXPENDITURE VARAINCE=
FOEV= (BUDGETED OVERHEAD- ACTUAL OVERHEAD)
• FIXED OVERHEAD VOLUME VARIANCE=
FOVV= (STD OVERHEAD- BUDGETED OVERHEAD)
OVER HEAD VARIANCE
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15. 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
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16. 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 favorable
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17. 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
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18. 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 = 300
MUV = -400 +300
-100 NOT FAVOURABLE
VERIFICATION
MCV = MPV +MUV
= (-40) + (-100)
= -14003/27/15 18S.Kacker,IHM Mumbai

19. CALCULATE LABOUR VARIANCES
WORKER 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
SOLUTION
1)LABOUR COST VARIANCE= (ST x SR) – (AT x AR)
SKILLED = (20 x 3) – (30 x 3)
= -30
UNSKILLED = (25 x 4) – (15 x 4.5)
= 32.5
LCV= -30 + 32.5
= 2.5
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20. 2) LABOUR EFFICIENCY VARIANCE = (ST – AT) x SR
Skilled= (20 - 30) x 3
= -30
Unskilled = (25 -15) x4
= 40
= -30 + 40 =10
(F)
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21. 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)
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22. SALES VARIANCES
A) 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
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23. 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
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24. 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
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25. SALES VARIANCE
CALCULATE SALES VARIANCES
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26. ACTUAL
P 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 20,000
15,000 2,00,000 1,30,000 70,000
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27. 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
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28. 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
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