Standard Costing I

1. Management Accounting One Standard Costing I

2. Product Costing Collecting the Cost Type of System Inclusiveness of Cost Actual M. L. & O/H Absorption Costing Job Cost Actual M & L Predetermined Overhead Variable (Direct) Costing Process Cost Standard M. L. & O/H

3. Standard Costing What is It ? Standard cost is the amount management thinks a product or the operation of a process should cost, based upon certain assumed conditions of efficiency

4. Standard Costing • Show the costs that should have been incurred? • Allows for investigation of the cause of the variances

5. Standard Cost Is The Planned Cost Variances from standard can result from: ?

6. Developing Standards Ideal standards – assumes operating conditions will be ideal; maximum efficiency at all times; usually will have unfavourable variances. Attainable standards – recognizes there will be some operating inefficiencies; will have both favourable and unfavourable variances.

7. Standard Cost Card Standard Quantity Standard Price Standard Cost Standard Cost, Product #1 Material A 12 kilos @ $ 5 $60 Material B 4 litres @ $ 3 12 Direct Labour 2 hrs. @ $14 28 20 Mfg. Overhead 2 hrs. @ $10 Total $120

8. Material Variances Standard Cost For Material Composed of Two Factors -- 1. Price that should be paid for the material and 2. Quantity of material that should be used to produce each unit of output

9. Price Variance Calculation Timing Quantity Used Quantity Purchased Price Variance Isolated At time of Use At Time of Purchase Inventory Carrying Cost Standard Cost Actual Cost Material Purchase Price Variance Material Usage Price Variance

10. Material Price Variances Material Purchase Price Variance Variance = Actual Quantity Purchased x (Actual Unit Price - Standard Unit Price Material Usage Price Variance Variance = Actual Quantity Used x (Actual Unit Price - Standard Unit Price

11. Material Quantity Variance Results from the use of more or less raw material than provided for by the material standard. * Standard quantity for the production attained Variance = Standard Price x (Actual Material Quantity - Standard Material Quantity*)

12. Net Material Variance Net Variance Act. Qty. X Act Price Act. Qty. X Std. Qty. X Std. Price Std. Price MPV MQV (ACT. P - STD. P) X ACT QTY (ACT. QTY - STD QTY) X STD P

13. Labour Variances Standard cost for labour is composed of two factors -- 1. Rate that should be paid for labour hours and 2. The amount of time required to produce each unit of output (efficiency)

14. Labour Rate Variance Difference between the Actual Rate Paid and the Standard Rate allowed times the actual number of hours worked. Variance = Actual Hours x (Actual Rate - Standard Rate)

15. Labour Efficiency Variance Difference between the Actual Hours worked and the standard hours allowed for the output attained times the standard labour rate. Variance = (Actual Hours - Standard Hours) X Standard Rate

16. Labour Variances Net Variance Act. Hrs. Act. Hrs. Std.. Hrs. X X Std. Rate X Act. Rate Std. Rate LRV LEV (ACT. R - STD. RATE) X ACT HRS. (ACT. HRS.- STD HRS.) X STD RATE

17. The X Files Company X Files manufactures a special Nanny Spy Tool. The firm has developed the following standards for one: Materials 3 cm @ $0.50 per cm Direct Labour 8.7 min./unit @ $3.00 /hour During a recent month the firm produced 6,000 units and incurred the following costs: 25,000 cm purchased at $0.60 per cm 20,000 cm used Direct labour 1,000 hours at a total cost of $3,250

18. Standard Cost Card Standard Quantity Standard Price Standard Cost Standard Cost, Product #1 Material 3 cm @ $0.50 cm $ Direct Labour 8.7 min. @ $3 per hour Calculate the Variances

19. What are the Causes?