2. A predetermined cost which is computed in
advance of production on the basis of a
specification of all the factors affecting cost
and used in standard costing.
STANDARD CRITERION
STANDARD COST
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3. It is a technique of accounting which compares
the standard cost of each product and service
with the actual cost, to determine the efficiency
of the operation, so that a remedial action may
be taken immediately.
STANDARD COSTING
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4. 1. Helps management in planning, co-
ordination, motivation, control.
2. Measurement of efficiency.
3. Formulation of policies.
4. Cost reporting.
5. Inventory valuation.
ADVANTAGES
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5. Cost Variance is the difference between
standard cost and the comparable actual
cost incurred during a period.
Variances are computed under each element
of costs.
Variance provides key to cost control.
COST VARIANCE
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6. Variance Analysis is the process of
analyzing variances by sub dividing the
total variance in such a way that
management can assign responsibility
for off standard performance.
VARIANCE ANALYSIS
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8. • MATERIAL COST VARIANCE=
(Std Qty x Std Price)- (Actual Qty x Actual Price)
MCV=(SQ x SP) – (AQ x AP)
• MATERIAL PRICE VARIANCE=
(Std price – Actual price) x Actual Qty
MPV= (SP – AP) x AQ
• MATERIAL USAGE VARIANCE=
(Std Qty – Actual Qty) x Std Price
MUV= (SQ – AQ) X SP
MATERIAL VARIANCE
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9. • MATERIAL MIX VARIANCE
= STD PRICE(REVISED STD QTY – ACTUAL QTY)
REVISED STD QTY= TOTAL ACTUAL QTY x STD QTY
TOTAL STD QTY
• MMV = SP (RSQ-AQ)x SQ
TOTAL SQ
MATERIAL VARIANCE
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10. MATERIAL YIELD VARIANCE
= (STD LOSS ON ACTUAL INPUT –
ACTUAL LOSS ON ACTUAL
INPUT) X STD AVERAGE PRICE / UNIT
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11. • LABOUR COST VARIANCE=
= (STD TIME x STD RATE)- (AT x AR)
• LABOUR RATE VARIANCE=
= (STD RATE – ACTUAL RATE) x ACTUAL TIME
LRV= (SR – AR)x AT
• LABOUR EFFICIENCY VARIANCE
= (STD TIME – ACTUAL TIME) x STD RATE
= LEV- (ST-AT)x SR
LABOUR VARIANCE
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12. • LABOUR MIX VARIANCE
= STD RATE(REVISED STD TIME – ACTUAL TIME)
REVISED STD TIME= TOTAL ACTUAL TIME x STD TIME
TOTAL STD TIME
• LMV = SR(RST-AT)x ST
TOTAL ST
• IDLE TIME VARIANCE
= IDLE TIME x STD RATE
= ITV= IDLE TIME x SR
LABOUR VARIANCE
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13. • VARIABLE OVERHEAD VARIANCE =
VOV= (STD VARIABLE OVERHEAD – ACTUAL VARIABLE
OVERHEAD)
• FIXED OVERHEAD VARIANCE =
FOV= (STD FIXED OVERHEAD- ACTUALFIXED OVERHEAD)
STD FIXED OVERHEAD= ACTUAL OUTPUT x STD FIXED
OVERHEAD RATE
STD FIXED OVERHEAD RATE= BUDGETED FIXED OVERHEAD
BUDGETED OUTPUT
OVER HEAD VARIANCE
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14. FIXED OVERHEAD EXPENDITURE VARAINCE=
FOEV= (BUDGETED OVERHEAD- ACTUAL OVERHEAD)
• FIXED OVERHEAD VOLUME VARIANCE=
FOVV= (STD OVERHEAD- BUDGETED OVERHEAD)
OVER HEAD VARIANCE
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15. Following are the particulars in respect of a
product where two types of materials ‘A’ and ‘B’
are required. You are required to calculate
material variances.
MATERIAL VARIANCE
Material SQ(Kg) SP(Rs) AQ(kg) AP(Rs)
A 240 10.0 280 9.50
B 160 7.50 120 9.00
TOTAL QTY 400 400
Less Normal
Loss
40 36
360 364
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16. SOLUTION
1) Material Cost Variance
MCV = (SQ x SP) – (AQ x AP)
A = (240 x 10) – (280 x 9.50)
= 2400 – 2660
= -260
B = (160 x 7.50) – (120 x 9.00)
= 1200 – 1080
= +120
MCV = -260 + 120
= -140
Not favorable
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17. 2. MATERIAL PRICE VARIANCE
MPV= (SP – AP) x AQ
A= (10-9.50)x 280
= 0.50 x 280
= 140
B= (7.50- 9.00) x280
= -1.50 x 120
= - 180
MPV= (140) + (-180)
= -40 – Not Favorable
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19. CALCULATE LABOUR VARIANCES
WORKER ST(HRS) SR(RS) TOTAL
(RS)
AT (HR) AR(RS) TOTAL
(RS)
SKILLED 20 3 60 30 3 90
UNSKILLED 25 4 100 15 4.5 67.50
45 45
SOLUTION
1)LABOUR COST VARIANCE= (ST x SR) – (AT x AR)
SKILLED = (20 x 3) – (30 x 3)
= -30
UNSKILLED = (25 x 4) – (15 x 4.5)
= 32.5
LCV= -30 + 32.5
= 2.5
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20. 2) LABOUR EFFICIENCY VARIANCE = (ST – AT) x SR
Skilled= (20 - 30) x 3
= -30
Unskilled = (25 -15) x4
= 40
= -30 + 40 =10
(F)
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21. 3) LABOUR RATE OR PAY VARIANCE
= (SR –AR) x AT
Skilled = (3 – 3) x30 = 0
Unskilled= (4 - 4.5) x 15 = -7.5
LRPV= 0 + (-7.5) = -7.5
Verification
LCV = LEV + LRPV
= 10 +(- 7.5)
= 2.5 (F)
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22. SALES VARIANCES
A) Sales value variances =
= (Actual Qty x Actual price) – (Std Qty x Std price)
SVV = (AQ x AP) – ( SQ x SP)
B) Sales volume variance=
= (Actual Qty – Std Qty) x Std price
SVOV= (AQ – SQ) x SP
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23. C) Sales price Variance =
=( Actual price – Std price) x Actual Qty
SPV = ( AP – SP) x AQ
D) Sales mix Variance=
= Std price ( Actual Qty - Revised Std Qty)
Revised Std Qty = Total Actual Qty x Std Qty
Total Std Qty
SMV = SP ( AQ – RSQ)
RSQ= Total AQ x SQ
Total SQ
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24. PROFIT VARIANCES
• Value Variance
VV = Budgeted profit – Actual profit
• Price Variance
PV = Std Profit – Actual Profit
Where Std Profit = Actual Qty x Budgeted Profit/ unit.
• Volume Variance
VOV = Budgeted Profit – Std Profit
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