1 STANDARD

COSTING
1. A system that uses predetermined standard cost for DMC, DLC, MO

6
2. To identify different between actual cost of goods and the cost should have occured.
USES OF STANDARD COSTING

Perfomance Evaluation

2
Control
Control each activity i) Standard cost used to
that effect product cost measure the performance

DETERMINATION such as; price and

quality for material, the
time in making product
as a whole or particular
department or manager.
ii) Example; production
PARTIES RESPONSIBLE
FOR EACH VARIANCE
OF STANDARD and rate of wages and
manufacturing overhead
manager will be held
liable if the production
cost higher. 1.Direct Materials Price
COST IDEAL STANDARD VS NORMAL STANDARD
variance~Purchasing Department Manager
2.Direct Materials Quantity
Ideal Standard Normal Standard Variance~Factory supervisor,Production
1) DM = Standard price of DM per unit X Department Manager.
i) Represent efficient
Standard quantity of DM per unit i) Represent optimum
levels of perfomance
levels of performance 3.Direct Labour Price/Rate
ii) Developed under
ii) Developed under the Variance~Production Department
assumption there will be
2) DL = Standard rate of DL per hour X assumption no obstacles
occasional problems in
Manager,Personnel Department Manager.
Standard hour of DL per unit iii) Would be achieved production; equipment 4.Direct Labour
through the best possible
combination of factors
failure and material Quantity/EfficiencyVariance~Factory
defects
3) MO = POR per hour (variable/fixed) X Supervisor,Production Department
Manager
Standard hour of DL per unit 5.All Overhead Variances~Factory
Supervisor,ProductionDepartment

Standard costing Manager.

& variance
analysis
3 Direct Material
Variance Manufacturing 5
overhead variance

4
The difference between the actual direct
material cost and the standard cost Direct Labours Variable overhead variance Fixed overhead variance
material resulting from production
activities of the period Variance Is the difference between the standard Is the difference between the actual fixed
Is the difference between the amount variable overhead allowed for the actual overhead cost incurred and the standard
actually paid for labour and the amount output and the actual variable overhead fixed overhead cost allowed for actual output
•Material Price Variance cost produced
that should have been paid •Variable overhead expenditure variance
•Fixed overhead budget/expenditure
Different between the actual price and Different between the actual variable
variance
Different between the actual fixed
the standard price at the actual quantity •Labour Price/Rate Variance overhead rate and predetermined rate at manufacturing overhead cost and budget
the actual direct labour hours fixed manufacturing overhead cost
of material Different between the rate actually paid •Variable overhead efficiency variance •Fixed overhead volume variance
•Material Quantity Variance to workers and rate that supposed to be Different between the actual direct labour Different between budget at normal
production and the applied fixed
Different between the quantity of paid at actual hours worked hours and standard hours worked at a
manufacturing overhead based on actual
predetermined overhead rate production
material actually used and the quantity
•Labour Quantity/ Efficiency Variance
should have been used at the standard Different between the actual number of
price of material hours worked and number hours that
should have been worked at standard
labour rate
 F = -VE
CALCULATION OF
Standard costing & VARIANCE REPORT
VARIANCE UF = +VE
variance analysis

i) DIRECT MATERIAL ii) DIRECT LABOURS

VARIANCES VARIANCES
Direct Materials Variances = Direct Labour Variances =
Price Variance + Quantity Price/Rate Variance +
Variance Quantity/Efficiency
Variances
1) Price Variance = AQ(AP - SP) 1) Price/Rate Variance =
AH (AR - SR )
2)Quantity Variance = 2) Quantity/Efficiency
SP (AQ - SQ ) Variance
= SR (AH - SH )

iii)VARIABLE MO iv) FIXED MO

VARIANCE VARIANCE
Variable MO Variances = Fixed MO Variances =
Expenditure Variance + Efficiency Budget Variance + Volume
Variance Variance
1) Expenditure variance = 1) Budget variance =
(AR x total AH) - (SR x total AH) (AR x total AH) - (SR x total BH)

2) Efficiency variance = 2) Volume variance =

(SR x total AH) - [SR x ( SH per unit (SR x total BH) - [SR x ( SH per unit
x AU)] x AU)]
 QUESTION 1 :

WHAT IS
STANDARD
COSTING IS QUESTION 2 :
QUESTION 3 : USED FOR?
WHAT IS DIFFERENT
WHAT IS THE FORMULA BETWEEN ACTUAL
OF DIRECT MATERIAL DIRECT MATERIALS
FOR STANDARD COST? COST INCURRED AND
THE STANDARD COST

QUESTIONS
QUESTION 4 : QUESTION 5 :
WHAT IS THE
GIVE 2 PARTIES DIFFERENT BETWEEN
RESPONSIBLE FOR ACTUAL DIRECT
ALL OVERHEAD MATERIALS COST
VARIANCE INCURRED AND THE
STANDARD COST?