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Standard Costing
- 1. • Standard costing– Definition • Variance Analysis • Material variances with verification • Labour Variances with verification STANDARD COSTING
- 2. STANDARD COSTING -DEFINITION “The preparation and use of standard costs, their comparison with actual costs and analysis of variance to their causes and points of incidence.” - I.C.M.A. London
- 3. BenefitsOfStandardCosting Valuable Aid tomanagement Measurement of Efficiency Formulation of Production and Pricing Policies Quick Reporting Less Cost of Operation Improvement in Efficiency Inventory valuation Simplified Promotes Cost Consciousness
- 4. MATERIAL VARIANCES Material Cost Variance MaterialPrice Variance Material Usage Variance Material Mix Variance Material Yield Variance
- 5. 1. Material CostVariance(MCV): it is the difference between standard cost of material used. 𝑀𝐶𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑖𝑐𝑒 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑃𝑟𝑖𝑐𝑒 2. Material Price Variance(MPV): it is that portion of the material cost variance which is used due to the difference between the standard price specified and the actual price paid. 𝑀𝑃𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑖𝑐𝑒 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝑃𝑟𝑖𝑐𝑒 × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑈𝑠𝑒𝑑 3. Material Usage Variance(MUV): it is found by comparing the actual usage with the standard usage of materials. 𝑀𝑈𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑈𝑛𝑖𝑡
- 6. 4. Material MixVariance(MMV): when different types of materials are used in a certain proportion, a mix variance is created. It is the difference between the total quantity in standard proportion and the actual quantity of material used, both priced at the standard price. 𝑀𝑀𝑉 = 𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝑄𝑢𝑛𝑎𝑡𝑖𝑡𝑦 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑖𝑐𝑒 Revised Standard Quantity = 𝑇𝑜𝑡𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝐴𝑐𝑡𝑢𝑎𝑙 𝑀𝑖𝑥 𝑇𝑜𝑡𝑎𝑙 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑀𝑖𝑥 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 5. Material Yield Variance(MYV): it is the difference between the standard yield of the actual material input and the actual yield, both at the standard cost. 𝑀𝑌𝑉 = 𝑅𝑒𝑣𝑖𝑠𝑒𝑑 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑖𝑐𝑒 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑃𝑟𝑖𝑐𝑒
- 7. LABOUR VARIANCES Labour Cost Variance LabourRate Variance Labour Efficiency Variance Labour Mix Variance Labour Yield Variance
- 8. 1. Labour CostVariance(LCV): it is the difference between standard cost of labour and actual cost of labour employed. 𝐿𝐶𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 × 𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑎𝑡𝑒 2. Labour Rate Variance(LRV): it is that portion of the labour cost variance which is used due to the difference between the standard labour hours specified and the actual labour hours expended. 𝐿𝑅𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑎𝑡𝑒 × 𝐴𝑐𝑡𝑢𝑎𝑙 Hours 3. Labour Efficiency Variance(LEV): it is the difference between standard labour hours specified and the actual labour hours expended. 𝐿𝐸𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 Rate
- 9. 4. Labour MixVariance(LMV): it is the variance which arises due to change in the mix of Labour force 𝐿𝑀𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑀𝑖𝑥 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝐻𝑜𝑢𝑟𝑠 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒 5. Labour Yield Variance(LYV): it is the difference which arises due to the difference between standard output specified and the actual output obtained. 𝐿𝑌𝑉 = 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 − 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐻𝑜𝑢𝑟𝑠 𝑓𝑜𝑟 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑀𝑖𝑥 × 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑅𝑎𝑡𝑒