Standard costing and variance analysis.pdf

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Module 15 : Standard Costing and Variance Analysis. Lecture 1 : Standard Costing and Variance Analysis. Objectives. In this lecture you will learn the following. Definition of standard. Steps in standard costing. Types of standards. Variance. Types of variance. Variance Analysis. Advantages & disadvantages of Std costing. Variance. “Difference between a planned, budgeted or standard cost and the actual cost incurred. The same comparisons may be made for revenues.” Administrative Cost Variance. “Measurement of the extent of any over- or underspend on administrative costs.” Variance Analysis. “Evaluation of performance by means of standard cost is confined to production/manufacturing cost only. Hence, most of the organizations tend to set standard cost and conduct variance analysis based on the overall production/manufacturing costs and as such some argue that this technique will only be applicable to the entity which undertakes manufacturing of 2. Variance Analysis requires and understanding of: Product flow assumptions. Standard costing systems. © Imparano, Inc MMVII. Standard costing systems. Cost - Volume - Profit. Absorption and Direct costing. Product Flow. Raw. Material. Work in. Progress. Finished. Goods. Materials. © Imparano, Inc MMVII. Material g. Cost. Total. Formula Fixed. Flexible. Actual per Hour. Cost. Budget. Results. Variances. Machine hours. 8,000. 8,000. 0. Variable costs. Indirect labor. 4.00. $. 32,000. $. 34,000. $. $ 2,000 U. Indirect material. 3.00. 24,000. 25,500. 1,500 U. Power. 0.50. 4,000. 3,800. 200 F. Total variable cost. 7.50. $. 60,000. $. 63,300. $. Variance analysis is part of a budgetary control process, whereby a budget (or standard) for costs and revenues, is compared to the actual results of the organisation e.g. financial analysis of the differences between standard and actual costs. between actual fixed overhead costs and the standard fixed overhead costs that are applied to good units produced using the standard fixed overhead rate. budgeted fixed overhead variance) is the difference between budgeted and actual fixed overhead costs. 4.2 Time horizon of plans and budgets. 4.3 Budgets and forecasts. 4.4 The interrelationship of various budgets. 4.5 The uses of budgets. Structure of the lecture 4. 4.5 The uses of budgets. 4.6 Standard costing: standard quantities and costs. 4.7 Variance analysis: comparing the actual performance with the budget CHAPTER 28. Standard Costing and Variance Analysis. Introduction. The success of a business enterprise depends to a greater extent upon how efficiently and effectively it has controlled its cost. In a broader sense the cost figure may be ascertained and recorded in the form of. Historical costing and Predetermined costing This standard rate is applied to the standard labour or machine usage per unit to calculate the standard fixed overhead cost for a product. The total fixed overhead variance is the difference between the standard fixed overhead charged to production and the actual fixed overhead incurred.