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Unit 3 Part 3 - Standard Costing
Unit 3 Part 3 - Standard Costing
It is an excellent system of control of cost and of measuring the efficiency and improving upon it.
Standard costs are called pre-determined costs. This means that before the work actually started, an
extremely careful estimate of the cost is prepared to serve as a standard against which the actual is to be
measured. The difference between the standard cost and actual cost is termed as variance.
VARIANCE ANALYSIS
The major operative part in the standard costing is the comparison of the actual cost periodically with the
standard cost working out the variances and tracing out the root cause. The comparison will give an
overall measure of overspending or saving in the cost. Such costs are separated and variances are named
after it.
ABREVATIONS
MATERIAL VARIANCES
1. Product A requires 10 kg of material @ RS 4 per kg. The actual consumption of the material for
manufacturing the product is 12 kg @ RS 4.5 per kg. Calculate MCV, MUV, and MPV.
SOLUTION:
Given:
SP = RS 4 per kg
AP = RS 4.5 per kg
SQ = 10 kg
AQ = 12 kg
1. MCV = (SP * SQ) – (AP * AQ)= (4*10) – (4.5*12)= 14 (UF)
2. MUV = (SQ – AQ) SP = (10 – 12) 4 = 8 (UF)
3. MPV = (SP – AP) AQ = (4 – 4.5) 12 = 6 (UF)
SOLUTION:
Given:
SQ = 400*5=2000 kg
SP = RS 5 per kg
AQ = 2200 kg
AP = RS 4.8 per kg
1. MCV= (SP*SQ)-(AP*AQ)=(5*2000)-(2200*4.8)=560 (UF)
2. MPV = (SP-AP)AQ =(5-4.8)2200=440 (F)
3. MUV =(SQ-AQ)SP=(2000-2200)5=1000 (UF)
3. Calculate the total MCV, MPV,AND MUV for the material x and y which is required to
produce one unit of product A
SOLUTION:
4. From the following information calculate: MMV, MCV, and MPV AND MUV.
SOLUTION:
4. R of A = SQ*TAQ/TSQ = 4*6/8 = 3
R of B = 2*6/8 = 1.5
R of C = 2*6/8 = 1.5
5. MMV of A = ( R of A – AQ)SP =(3-2)1 = 1 (F)
MMV of B = (1.5-1)2 = 1 (F)
MMV of C = (1.5-3)4 = 6 (UF)
MMV total = MMV OF A + MMV OF B + MMV OF C = 4 (UF)
5.From the std cost sheet it is observed that one unit of product X requires 3kg of materials at rs2/kg.
during Jan 200 units of X were produced consuming a material of 620 kg all which were purchased at
rs1.8/kg .compute the material variances and present the variable in the tabular column.
Soln:
SQ= 600Kgs
AQ=620Kgs
SP=rs2/kg
AP=rs1.8/kg
MCV=(SP*SQ)-(AP*AQ) =(600*2)-(620*1.8) = 84(F)
MUV=(SQ-AQ)SP=(600-620)2 =40(U)
MPV=(SP-SP)AQ=(2-1.8)620=124(F)
Type of Act cost Act cost at std rate Std cost Material variances
material
Act Act Total Act Std Amt Std Std Amt MC MPV MUV
quant rate amt qty rate Qty rate V
M 620 1.8 1116 620 2 1240 600 2 1200 84(F 124(F) 40(U)
)
FORMULAE:
1. Labor cost variance = (SH*SR)-(AH*AR)
2. Labor rate variance = (SR-AR)AH
3. Labor efficiency variance = (SH-AH)SR
4. Labor mix variance = (R-AH)SR
5. Revised standard proportion, R = SH*TAH/TSH
PROBLEMS:
1. Standard time and the standard rate for a unit of production are given below:
SH = 15000 per unit
SR = RS 4 per hr
The actual data and related information is given below:
AH = 153000
AR = RS 3.9
Calculate the labor variances.
SOLUTION:
1. LRV = (SR-AR) AH = (4-3.9)15300 = 1530 (F)
2. LCV = (SH*SR)-(AH*AR) = (15000*4)-(15300-3.9) = 330 (F)
3. LEV = (SH-AH) SR = (15000-15300)4 = 1200 (UF)
2.
Particulars SH per unit SR per hr AH per unit AR per hr
Workman A 20 3 30 3
Workman B 25 4 15 4.5
SOLUTION:
1. LCV of A = (SH*AR) – (AH*AR) = (20*3) – (30*3) = 30 (UF)
LCV of B = (25*4) – (15*4.5) = 32.5 (F)
LCV total = LCV of A + LCV of B = 2.5 (F)
PROBLEMS:
1. The standard budgeted hours for the month of March are 180. The standard rate of articles
production is 50 per hour. The budgeted fixed oh cost is RS. 2700/-. The actual production for
month of March is 175. The actual oh cost is RS 2800/-. Calculate:
a. Overhead cost variance.
b. Overhead budgeted variance.
c. Overhead volume variance.
d. Overhead efficiency variance.
e. Overhead capacity variance.
Solution:
a.OHCV = (standard over head cost for actual production – actual overhead cost)
Standard production= 180 * 50 = 9000
Standard cost = RS 2700 for 9000
Standard overhead cost for actual production = 2700 * 9200/ 9000 = 2760
OHCV = 2760 – 2800 = 40 (UF)
c. OHVV/UNIT = (actual production – budgeted production) standard overhead rate per unit.
= (9200 – 9000) 0.3
=60 (F)
OHVV/HOUR = (standard overhead for actual production – budgeted hours) standard overhead rate
per hour.
= (184 – 180) 15(2700/180)
= 60(F)
Standard hours for actual production = 180 * 9200/9000 = 184
2. A factory has estimated its overheads per year at 96000/-. The factory works 300 days in a year and
8 hours a day. The total budgeted production for the year was 24000 units. The actual data is also
given for the month of April. The AOH cost is 8500/- . The actual output is 2100. The idle time is 4
hours. Calculate the overhead variances:
Solution:
Budgeted overhead cost per month = 96000/12 = 8000/-
Budgeted production per month = 24000/12 = 2000
Budgeted hours per month = 300 * 8 /12 = 200
Actual overhead cost = RS. 8500/-
Actual output = 2100
Actual hours worked = 196 (200 – 4)
1. Standard over head cost for actual production = 2100 * 8000 / 2000 = 8400/-
(For standard production of 2000 units, the SOHC is 8000/-)
2. Standard production in actual hours worked = 196*2000/200 = 1960 units.
(In 200 standard hours the standard production is 2000)
3. Standard hours for actual production = 2100*200/2000 = 210 hours.
(For 2000 units of standard production 200 standard hours is required)
Solution:
Budgeted production per month=4000/10=400 units
Standard overhead cost=4000*10=Rs 40,000
Std over head cost of actual production= (425*40000)/400=42,500
For std production of 400 units std overhead cost is =40,000
For 400 units of std production the std hours is 4000hrs
Std hours for actual production= (425*4000)/400=4250 hrs
For a standard production of 400, std hours required is 4000
Overhead calendar variance= (revised budgeted quantity-budgeted quantity)*standard over head rate
per unit
For the budgeted working days of 20 the standard production is 400 for actual working days of22 the
revised budgeted quantity is = (400*22)/20=440
b) Overhead cost variance
OHCV=(Std overhead cost for actual production-budgeted production)
=(42,500-47,000)=4,500(unfavorable)
c) Over head volume variance
OHVV/unit=(actual production-budgeted production)*SOHC/unit
= (425-400)*40000/400=2500(favorable)
OHVV/hour=(std hrs for actual production-budgeted hrs)*SOHR/hr
= (4250-4000)*40000/4000=2500 favorable
d) Overhead budgeted variance= (budgeted OH cost-actual OH cost)
= (40,000-47,000) =7000 unfavorable
e) Overhead efficiency variance
OHEV/unit= (Act production –std production in Actual hrs)*SOHR/unit
= (425-430)*40000/400=500 unfavorable
OHEV/hr= (std hrs for actual production-actual production)*SOHR/hr
= (4250-4300)*40000/4000=500 unfavorable
f) Overhead capacity variance
OHCpV/unit= (std production in actual hrs-budgeted production)*SOHR/unit
=(430-400)*40000/400=3000 favorable
OHCpV/hr= (Actual hrs –budgeted hrs) SOHR/hr
= (4300-4000)*40000/4000=3000 favorable
4) A manufacturing company operating standard costing system has a following data for feb1997
Actual no of working days =22
Actual man hours during month=8,600
Units produced=850 units
Actual fixed overhead cost=3,600/-
The following data is obtained from standard data budgeted number of working days/month=20
Man hours per month =8000 hrs
Standard man hours required /unit-10 hours
Standard fixed over head cost/hour=rs 0.5
Standard production hour =8000/10=800
Calculate the overhead variances
Solution
1)SOHC for actual output=850*4000/800=4,250
2) Budgeted overhead cost=0.5*8000=4,000
3) Budgeted production=8000/10=800units
4) Std hours required in actual production=850*8000/800=8,500
5) Std production in actual hours worked =8,600*800/8000=860
6) SOHrate /unit=4000/800=5
7) SOHrate/hr=4000/8000=0.5 (given)