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Standard Costing and Variance Analysis

The document discusses standard costing and variance analysis, outlining the purpose and types of standard costs used in manufacturing, service firms, and non-profit organizations. It explains the advantages of standard costs, such as promoting efficiency and simplifying bookkeeping, as well as disadvantages like the difficulty in determining material variances. Additionally, it details the process of variance analysis, including direct material and labor variances, and the calculation of standard costs per unit.

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30 views2 pages

Standard Costing and Variance Analysis

The document discusses standard costing and variance analysis, outlining the purpose and types of standard costs used in manufacturing, service firms, and non-profit organizations. It explains the advantages of standard costs, such as promoting efficiency and simplifying bookkeeping, as well as disadvantages like the difficulty in determining material variances. Additionally, it details the process of variance analysis, including direct material and labor variances, and the calculation of standard costs per unit.

Uploaded by

nandoogiieee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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STANDARD COSTING AND VARIANCE ANALYSIS unfavorable exceptions or not report them at all.

- Costly to implement
STANDARD
Users of Standard costs
- A measure of acceptable performance
established by management as a guide in 1. Manufacturing firms
making decisions. 2. Service firms
3. Non-profit Organization
STANDARD COSTS
- are predetermined or target unit cost of production Type of Standards
which should be attained under efficient conditions.
“should be cost” 1. Basic Standards – are standards that are
- It is the amount and costs of DM, DL, and FOH unchanged year after year.
required to produce one unit of finished good 2. Ideal/Perfect/Theoretical Standards – highest
- Are not only estimates of what costs will be but also and optimum level of performance under perfect
goals on costs to be achieved. operating conditions.
3. Currently attainable/Normal Standards –
efficient level of performance that are attainable
STANDARD COSTS SYSTEMS under expected operating conditions.
- is an accounting system that uses standard costs
rather than actual costs to account for units as they STANDARD SETTING
flow through the manufacturing processes.
To set standard costs, the following are its
Uses of Standard Costs components:
- Planning and controlling costs - Standard Price or rate – the amount that
- Inventory valuation should be paid for one unit of input factor.
- Measurement of performance (Inventoriable costs or product costs)
- Price setting - Standard Quantity – the amount of input
- Instrument of coordination factor that should be used to make a unit of
- Motivating employees product. (Bill of materials – net of
- Budget preparation evaporation, rejection, idle time)

Advantages and Disadvantages STANDARD COST PER UNIT = STANDARD


PRICE or RATE X STANDARD QUANTITY
Advantages Standard Price – P1/hr
- Standard costs serve as a key element in the Standard quantity – 5 hrs per unit
application of management by exception. Standard cost per unit – P5/unit
- Standard costs promote economy and efficiency
among employees. VARIANCE ANALYSIS
- The use of standard costs simplifies bookkeeping Variance is the DIFFERENCE between STANDARD
and costing procedures and ACTUAL costs.

Disadvantages ACTUAL >STANDARD


- Difficulty in determining which variances is - Unfavorable variance
material. - Debit variance
- Other useful information may not be noticed since -Generally added to COGS
attention is focused on variances.
- Subordinates may be tempted to cover up
STANDARD > ACTUAL OVERHEAD VARIANCES
- Favorable variance
-Credit variance
- Generally deducted to COGS

DM VARIANCES

If AQ purchased = AQ used
AQ x AP = XX
AQ X SP = XX
SQ X SP = XX

Standard Quantity = Actual Production x Std.


Quantity per unit

DM VARIANCES

If AQ purchased not equal to AQ used


AQ x AP = XX
AQ (P) x SP = XX
AQ (U) x SP= XX
SQ X SP = XX

Standard Quantity = Actual Production x Std.


Quantity per unit

DL VARIANCES

AH x AR = XX
AH X SR = XX
SH X SR = XX

Standard Hours = Actual Production x Std. Hours


per unit

MIX AND YIELD VARIANCE

AQ x AP = XX
AQ x SP = XX
AQ x WASP= XX
SQ X SP = XX

Mix and Yield → Sub-variances for DM Quantity


variance and DL efficiency variance
WASP = Total Standard Cost / Total Standard
quantity

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