Standard costing is a technique that uses predetermined costs and revenues to measure variances from actual costs and analyze their causes to improve efficiency. It involves setting standard costs for materials, labor, and overhead, measuring actual costs, comparing actuals to standards, and taking corrective action. Variances in standard costing include material cost, price, usage, mix, and yield variances as well as labor cost, rate, efficiency, and idle time variances. The goal is to eliminate waste and inefficiencies through variance analysis.

1. What is standard costing? Write down the different variances.<br />Ans. Standard costing is a predetermined cost. Historical costing is not an effective method of cost control. In this costing technique cost of the product is determined in advance. The limitations of historical costing led to the development of standard costing. In historical costing we control the thighs after they occur. on the other hand side in standard costing we determine what should be the cost of a product, if the actual cost is more than the standard cost, then why it is so. Standard costing helps in eliminating the waste and improving in efficiency of the working of the organization. So when standard cost is used for cost control purpose that technique is called as standard costing.<br /> Standard costing is the preparation of standard costs and applying them to measure the variations from actual costs and analyzing the causes of variations with a view to maintain maximum efficiency in production. It is a technique, which uses standards for costs and revenues for the purpose of control through variance analysis. These are the following steps in standard costing:<br />1. Ascertaining the standard costs for material, labour, and overheads.<br />2. Measurement of actual costs.<br />3. Comparison of actual and standard cost.<br />4.Taking corrective action and improving efficiency.<br />Variances of standard costing.<br />Direct material variances<br />Material cost variance: it is the difference between the standard cost of material allowed and the actual cost of material used.<br />Material cost variance= standard cost of material for actual output – actual cost of material used.<br />(b) Material price variance: It is that portion of material cost variance, which is due to difference between the standard cost of material used for the output achieved, and the actual cost of material used.<br /> = Actual Usage (Standard Unit Price – Actual Unit Price)<br />© Material Usage Variance: It is the variance, which is due to the difference between the standard quantity of material and actual quantity of material. <br /> = Standard Price per Unit (Standard Quantity-Actual Quantity)<br />Material Mix Variance: It is that portion of the material usage variance, which is due to the difference between standard and the actual composition of a mixture.<br />In case of material mix variance, two situations may arise:<br />Actual weight of mix and the standard weight of mix do not differ.<br />Standard unit cost (Standard quantity – Actual quantity)<br />Actual weight of mix differs from the standard weight of mix.<br /> Total weight of actual mix X St.cost of (revised) St. mix – St. cost of actual mix Total weight of (revised) st. mix<br />Material yield variance: It is that portion of the material usage variance, which is due to the difference between the standard yield specified and the actual yield obtained.<br />This loss may result in the following two situations:<br />When standard and actual mix do not differ:<br /> Yield variance = standard rate (actual yield – standard yield)<br /> Standard rate = standard cost of standard mix <br /> Net st. output<br />When actual mix differs from standard mix.<br /> <br /> Yield variance = standard rate (actual yield – revised standard yield)<br /> Standard rate = standard cost of revised standard mix <br /> Net st. output<br /> <br />Labour variances:<br />Labour cost variance: It is the difference between the standard cost of labour allowed for the actual output achieved and the actual cost of labour employed.<br /> Labour cost variance = Standard cost of labour – Actual cost of labour.<br />Labour rate variance: It is that portion of the labour cost variance that arises due to the difference between the standard rate specified and the actual rate paid.<br />Labour rate variance = Actual time taken (standard rate – actual rate).<br />© Total labour efficiency variances: It is the difference between standard labour cost of standard time for actual output and actual cost of actual time paid for.<br /> Total labour efficiency variances = Standard rate (standard time for actual output – actual time paid)<br />Labour efficiency variance: It is that portion of labour cost variance which arises due to the difference between the standard labour hors specified for the output achieved and the actual labour hours spent.<br />Labour efficiency variance = Standard rate (standard time for actual output -Actual time worked). <br /> (e) Labour idle time variance: It is calculated only when there is abnormal idle time. It is the variance, which is due to the abnormal idle time of workers.<br /> Idle time variance = abnormal idle time x standard rate. <br />