Standard Costing and its \Major Variances: Labor, Material and FO.

1. STANDARD COSTING
ZAREEN KHAN
13053032026
MBA-P
UMT

2. System for Computing and Analyzing
Costs and its Operations in an
Organization.
Historical Cost Vs. Standard Cost
COSTING:

3. Original cost/value of an asset or
liability at the time of transaction.
Example:
– June 2013: 20 units were bought on RS 40/unit
– July 2013: current price RS 50/unit
– It will be recorded as Rs. 800 NOT Rs. 1000 in balance
sheet.
HISTORICAL COSTING:

4. Doesn’t value appreciation /
depreciation of asset but, cost.
Unhelpful while comparing corporate
performances.
No set standards.
HISTORICAL COSTING: LIMITATIONS

5. Cost of product occurred or incurred
at the time of production.
Incurred on Direct Material, Direct Labor
and Factory Overheads.
ACTUAL COST:

6. • Standard: measure, criteria. (Example: ISO)
• Variances: Standard cost Vs. Actual cost
STANDARD COSTING:
Predetermined, planned or expected
cost under anticipated conditions.

7. When the actual
cost is less than
standard cost ,
it is known as
FAVORABLE
VARIANCE (F).
When actual
cost exceeds
standards cost, it
is known as
UNFAVORABLE
or ADVERSE
VARIANCE (A).
The deviation of actual
performance from standard is
called VARIANCE.
Role: Provide reasons for off-standard
performance.
Purpose: Improved operations, error
corrections and deployment of resources
effectively -> reduced costs.
VARIANCE ANALYSIS:
Direct
Material
Variance
Direct Labor
Variance
Factory
Overheads
Variance

8. How much more or less material cost had
been incurred when actual are
compared to the standards?
DIRECT MATERIAL VARIANCE:
Direct material costs (price and quantity variances)
For Price:
(Actual Quantity X Actual Price) – (Actual Quantity X Standard Price)
For Quantity:
(Actual Quantity X Standard Price) – ( Standard Quantity X Standard Price)

9. How much wage is paid on the output achieved?
How much time has been taken to achieve the output?
DIRECT LABOR VARIANCE:
Direct labor costs (wage rate and efficiency variances)
For Rate:
(Actual Hours X Actual Rate) – (Actual Hours X Standard Rate)
For Quantity:
(Actual Hours X Standard Rate) – (Standard Hours X Standard Rate)

10. How much fixed and variable overheads have been
charged actually than standard?
FACTORY OVERHEADS VARIANCE:
Manufacturing/Factory Overheads (fixed and variable)
For Variable Overhead Variance:
(Actual Output X Standard Rate) – (Actual Output X Actual Rate)
For Fixed Overhead Variance:
(Actual Output X Standard Fixed Overhead) – (Actual Output X
Actual Fixed Overhead)

11. Rules, levels,
guidelines for
production and
price strategies
Comparison and
analysis of data
management
Good for cost
consciousness
organizations
Prepare financial
statements
effectively
Better economy,
efficiency, and
productivity
Assists in
budgeting
Helps in
performance
management
STANDARD COSTING: BENEFITS

12. Process is
technical
Not an easy task
to set the
standards
Meeting standards
should not only be
the target.
STANDARD COSTING: LIMITATIONS

13. THANK YOU!