 |
| Corporate practice bd |
standard costing is that the accountancy method that determines the expected cost for every product as an element of production planning or budgeting. It’s called the predetermined cost, estimated cost, expected cost, or the budgeted cost. The company usually conducts the testing to estimate a correct standard cost of every production unit. With this cost, they'll be ready to calculate the inventory valuation, cost of products sold, which is able to impact the profit during the amount. More important, it helps the management to line a correct price and compete within the market.
Type of Standard Costing:
01.Ideal, Perfect or Theoretical standards:
This type of normal costing believes the proper condition when there's no interruption and wastage during production. They believe that there's no machine breakdown, worker coffee break, or any error within the production process. Therefore, the assembly is ready to maximize their capacity which just about impossible to happen in real world.
02.Normal standards:
The normal cost are used over a period of your time, usually the variation of the corporate. It bases on the common between the best and lowest production over the cycle. The corporate expects that the price won't change over the complete cycle.
03.Basic standards:
As the name suggests, it bases on the belief of the essential nature of company business over an extended period of your time.
04.Current standards:
This method will always update to reflect on current business operations. So they can use over a long or short time based on how fast the change in business.
There are some important formulas of Standard costing are mention below categories wise
Material Variance:
01.Material cost Variance = (Actual cost - standard cost )
[AP=Actual price,SP =Standard price]
02.Material Price Variance = (AP-SP)* A.QTY-Purchase[Actual qty purchase)
03.Maternal Qty or Usage Variance=(AQTY- Usage-SQTY Usage)*SP
04. Material Volume Variance=(AQTY -purchase- SQTY for Actual Production)*SP
05. Material Mix variance (Normal way)=(SP-AV SP)*AQTY [AVSP=Average standard price]
AV.SP=(Total standard Materials cost,A,B,C) /Total standard Unit like-(A+B+C)
[when include Standard Material Units input % is given in the standard cost figure then,]
06.Material Mix variance=(Actual input QTY -SQTY input for Actual total* % of Standard Input)*SP
07.Material efficiency Variance=(Actual usage at SP -Standard usage at SP)
Labor Variance [A=Actual Hour, AR=Actual Rate]
08. Labor cost Variance=(AC-SC) [AC= (AH*AR), SC= (SH*SR),
09. Labor Rate Variance =(AR-SR)*AH
10. Labor Efficiency/Time Variance =(AH-SH)*SR (Excluding Idle time)
11.Labor Mix Variance(Normal Way) =(SR- AV.SR)*AH
12.Labor Yield variance-variance (Normal Way)=[(AH-SH)*AVSR]
Factory Overhead Variance:
There are several Methods are applied in Factory Overhead Variance like,
Two variance Method:
01.Control able Variance:
Actual Factory overhead ****
Less: Budgeted FOH Based on SH
Fixed(given ) ,or SD, or, budgeted= ( *****)
Variable cost(SH*S.V.FOH Rate)= (*****)
Result -Control able Variance= *****
02.Volume Variance:
Budgeted OH bases on standard hour(above) = ****
Less:(SH*Standard over head rate) =****
Result-Volume Variance:= ****
Three-Variance Method:
01.Budget variance or spending variance:
Actual Factory overhead ****
Less: Budgeted OH Based on AH
Fixed(given ) ,or SD, or, budgeted= ( *****)
Variable cost(AH*S.V.OH Rate)= (*****)
Result -Spending Variance= *****
02. Idle Capacity variance
Budgeted OH Based on AH (Above)= *****
Applied Factory overhead (V+F)
(AH*S. fixed OH Rate)=(*****)
Result -Idle Capacity variance= *****
03. Factory overhead Efficiency variance:
=(AH-SH)*Standard factory OH Rate-(V+F)
Four-Variance Method:
01. Budget variance or spending variance:
Actual Factory overhead ****
Less: Budgeted OH Based on AH
Fixed(given ) ,or SD, or, budgeted= ( *****)
Variable cost(AH*S.V.OH Rate)= (*****)
Result -Spending Variance= *****
02.Variable overhead efficiency variance
= (AH-SH)*Standard variable factory rate Rate
03.Fixed over head Efficiency Variance
= (AH-SH)*Standard Fixed Rate
04.Idle capacity Variance on Factory overhead
=(Normal capacity hour-Actual capacity hour)*Standard factory overhead rate-(V+F)
Sales Variance:
01.Sales cost Variance = (AQS*AV.SP)(B.Q.S*B.S.P) [Where AQS=Actual QTY Sales,
AV.SP=Average Standard Price,
B.Q.S=Budgeted QTY Sales]
02.Sales price Variance = (A.S.P-S.S.P)*A.QTY Sold [ A.S.P=Actual selling Price
A.QTY=Actual QTY sold]
03.Sales volume Variance = (A.QTY sale-S.QTY sales)*S.Selling price) [S=standard]
(Normal way where no C.M exist)
04. Sales MiX Variance (normal way) =(AV.S.S.P -S.S.P)*Actual QTY Sales,
[AV.S.S.P=Average standard selling price ]
05.Sales QTY Variance =(A.QTY sales-Standard QTY sales)* AV.S.S.P
Others Categories Variance:
01.Variable over head spending Variance=(A.V .Overhead rate-S.V.Overhead rate)*Actual Hours
02.Variable overhead efficiency Variance=(Actual hour-standard hour)*S.V. overhead rate
03.variable Manufacturing overhead spending Variance=
Actual Variable Manufacturing overhead =*****
Less:(AH*Budgeted Variable overhead Rate)= (*****)
Result-variable Manufacturing overhead spending Variance=******
04.Fixed overhead spending variance =
Actual Fixed overhead cost =*****
Less: Budgeted hours* S.Fixed overhead rate)=(*****)
Result- Fixed overhead spending variance =*****
05. Fixed overhead Volume variance =
(Budgeted direct labor hour-standard direct labor hour)*Budgeted factory overhead Rate
06.Fixed overhead efficiency variance =(AH-SH) Standard fixed overhead rate
07.Fixed overhead Budget variance =
Actual Fixed overhead =****
Less: Budgeted Fixed Over head=(****) Where ,[SH*SD overhead rate(V+F)]
Result- Fixed overhead Budget variance =*****
08.Fixed Manufacturing overhead spending Variance=
Actual fixed Manufacturing overhead =*****
Less:(budgeted fixed Manufacturing overhead)= (*****)Where ,[SH*SD fixed overhead rate(V+F)]
Result-variable Manufacturing overhead spending Variance=******
09.Manufacturing overhead Volume Variance
= (Budgeted Hours-standard hours)* B .Fixed OH rate)
10.Manufacturing overhead Efficiency Variance :
= (Actual Hours-standard hours)* Variable per Direct labor Hour )
Let,s start with Practical Example
Practical Example. (01)
The wimax company LTD. manufactures & sales single product, Variable manufacturing overhead is applied on the basis of direct labor hours .the standard cost data for one unit of product are as follows-
Direct Material-6 ounce @ 0.50 per ounce Tk. = 3.00
Direct Labor -0.60hours@30.00 per hour Tk.= 18.00
variable manufacturing overhead -0.6 hours @ 10 per hour Tk.= 6.00
Fixed manufacturing overhead -0.90 hours @ 10 per hour Tk.= 9.00
Total standard variable cost per unit=36.00
During June 2022 , 2000 units were produce. the cost associate with June,s operation were as follows-
Direct Material- purchase 18000 ounce @ 0.60 per ounce Tk. = 10,800.000
Material use in production = 14,000 ounce
Direct Labor - 1100 hours@30.50 per hour Tk. = 33,550.000
variable manufacturing overhead cost incurred Tk. = 12,980.000
Fixed manufacturing overhead cost incurred Tk. = 1,50,000.000
Requirement :
Materials Variance
01. Compute -Direct material cost variance
02. Compute -Direct material price variance
03.Compute -Direct material QTY /Usages variance
04. Compute -Direct material Volume variance
05. Compute -Direct Material Mix variance (Normal way)
Labor variance
06.Compute -Direct Labor cost Variance
07.Compute -Direct Labor rate Variance
08.Compute -Direct Labor Efficiency/Time Variance
09.Compute -Direct Labor Mix Variance (Normal way)
Variable Manufacturing overhead Variance
10.Compute -Variable Manufacturing overhead Rate Variance
11.Compute -Variable Manufacturing overhead efficiency Variance
Fixed Manufacturing overhead Variance
12.Compute - Fixed Manufacturing overhead Volume Variance
13.Compute - Fixed Manufacturing overhead Efficiency Variance
Factory overhead Variance-( Under Four-Variance Method):
14.Budget variance or spending variance
15. Variable overhead efficiency variance
16.Fixed overhead Efficiency Variance
17.Idle capacity Variance on Factory overhead
Solution: (Try Yourself).....
VERY NICE
ReplyDelete