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IVIAS-06: STANDARD COSTING

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STANDARD - .a •benchmark set by , management in aid of performance measurement. In manufacturin

, companies, standards are classified into two (2) categories: . •
• QUANTITY Standard - indicates the quantity of raw materials or labor time required to produce a
• unit of,product. This is normally expressed per unit of .output
/ • . (e.g., 3 pieces per unit).
,
• COST Standard - indicates what tl3e cost of the quantity standard should be. This is normally
,
expressed per unit of input: (e.g., P 12.00 per piece).
•
SITANDAFID COSTS -- systematically i' re ,--determihed• costs established by management, to k:te , used as a basis
' • for comparison with actual cost. ,

BUDGETS vs. STANDARDS

BUDGETS STANDARDS
Purpose Budgets are statements' of expected Standards pertain to what costs should be
costs; iven a certain level öfjDerformance.
Emphasis Budgets emphasize cost levels that Standards emphasize the levels' to which costs
should not be exceeded. should b'e reduced. .
Coverage Budgets ar;e set , for all departments -- Standards are set only for the production or ,

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sales administration & manufacn. _manufacturing division of the firm:

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Analysis When actual, data differ from the Material amounts of variance are ,reviewed •
budget, it • may be an indication. of and investigated so that necessary corrective

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STANDARD COST VARIANCE ANALYSIS
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VARIANCE Actual Costs (AC) - Standard Costs (SC)

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AC > SC: Unfavorable (debit balance).

. . •
AC < SC: Favorable (credit balance)
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MATE/RIALS Variance - , ' •

Actual Materials Cost , Actual Quantity (AQ) x Actual Price (AP)
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Standard Materials cost .4 Standard Quantity (SQ) x Standard Price (SP)

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Materials Cdst Variance .

Analysis: ,
Quantity variance: LQxSP •---- Difference in quantities x Standard 'price •
• , ,
Price variance:
, AQx --
-- Actual quantity '?( Difference n
i prices
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'LABOR Variance • - ,
ar stu

Actual Labor CostActual Hours (AH) x Actual Rate (AR)

- $tandard Labor Cost <- 2 Standard Hours (SFI) x Standard Rate (SR)
- Labor Cost Variance
, -

Analysis:
is

Efficiency variance: L HxSR ---- Difference in hours x Standard rate -

Rate variance: AHxAR = Actual hour x Difference in rates • .
-
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FACTORY OVERHEAD (FOH) Variailce = (Actual FOH cost) -- (Standard F01-I cost)
(Refer to page 2 for complete FOH Variance Analysis)
,

MATERIALS PRICE MIX and YIELD Variances

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Mix and yield variances are normally calculated whenever the production process involves combining
several materials to 'produce a unit of product.

Materials variance = Actual Materials Cost - Standard Materials Cost

. ,
Analysts:
) , Price var-iane: AQxA .
Mix variance: (A Q x S P) TAQASP • °
Yield variance: TAQASP - Standard Cost '
Legend .• -
AQ Actual quantity
- ,C,P Differerice in prices SP - Standard price
TAQASP Total.Actual Quantity at Average Standard Price \

' NOTE: Mix and yield variances may also ,apply to direct labor, specifically in situations where seVerl
different labor skills are required to produce units of products.

Page \1 of 6 pages ,

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