Sunday, April 20, 2008
Standard Costing is a technique which predetermined estimates of the cost of products and services which compares with the actual cost incurred. It is a planned or budgeted cost expressed on a per unit basis.
The purpose of Standard Costing is as follows:
1. Act as a control device through variance accounting to highlight the deviations from plans so that necessary actions can be taken.
2. Motivates employees to achieve the standard targets.
3. It may be used for valuing ending stocks and cost of goods sold.
4. Standard cost could be used in development of budgets.
5. Standard cost is predicted future cost, which can be used to support decision making. (ie. price decision)
Next......
Variance Analysis
This involves the comparison between the standard and actual.
The purpose of Variance Analysis is:
1. Used for control purposes.
2. Useful only is acted upon on a timely basis.
3. Variance identified must meet needs of management.
Now, we look at the different types of variances:
Direct Material Variance
DM Variance = D M Price Variance + D M Usage Variance
The DM variances indicate whether the material used have been bought at the right price of whether the correct amounts have been used.
Direct Labour Variance
DL Total Variance = Rate Variance + Idle Time + Efficiency Variance
The DL variances indicate the quality of the workers used, whether they are fully optimised or they are doing the job correctly.
Overhead Variances
OH Variances = Variable OH Variances + Fixed OH Variances
Variable OH V = Expenditure OH V + Efficiency OH V
Expenditure Variance simply means under/ over absorbed variable OH
Efficiency Variance is a measure of additional variable overhead saving cost saved or incurred as a result of the efficiency of the labour force.
Fixed O H Varience
F. OH V = Expenditure Variance + Volume Variance
Expenditure Variance = Actual F. OH - Budgeted F. OH
Volume Variance = Budgeted F. OH = (Fixed Overhead Absorption rate * Standard Hours Allowed)
Expediture Variance simply mean whether the services are economical and saving in cost will be incurred or not.
The purpose of Standard Costing is as follows:
1. Act as a control device through variance accounting to highlight the deviations from plans so that necessary actions can be taken.
2. Motivates employees to achieve the standard targets.
3. It may be used for valuing ending stocks and cost of goods sold.
4. Standard cost could be used in development of budgets.
5. Standard cost is predicted future cost, which can be used to support decision making. (ie. price decision)
Next......Variance Analysis
This involves the comparison between the standard and actual.
The purpose of Variance Analysis is:
1. Used for control purposes.
2. Useful only is acted upon on a timely basis.
3. Variance identified must meet needs of management.
Now, we look at the different types of variances:
Direct Material Variance
DM Variance = D M Price Variance + D M Usage Variance
The DM variances indicate whether the material used have been bought at the right price of whether the correct amounts have been used.
Direct Labour Variance
DL Total Variance = Rate Variance + Idle Time + Efficiency Variance
The DL variances indicate the quality of the workers used, whether they are fully optimised or they are doing the job correctly.
Overhead Variances
OH Variances = Variable OH Variances + Fixed OH Variances
Variable OH V = Expenditure OH V + Efficiency OH V
Expenditure Variance simply means under/ over absorbed variable OH
Efficiency Variance is a measure of additional variable overhead saving cost saved or incurred as a result of the efficiency of the labour force.
Fixed O H Varience
F. OH V = Expenditure Variance + Volume Variance
Expenditure Variance = Actual F. OH - Budgeted F. OH
Volume Variance = Budgeted F. OH = (Fixed Overhead Absorption rate * Standard Hours Allowed)
Expediture Variance simply mean whether the services are economical and saving in cost will be incurred or not.
Labels: accountancy, accounting, management accountancy, managerial accounting, standard costing
what we could have been, 10:29 AM.
