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Standard Costing and Variance Analysis

1) Standard costing is a budgetary control technique that compares planned standard costs with actual results to obtain variances and stimulate improved performance. 2) Under a standard costing system, standard costs for output are recorded for each responsibility center and actual costs are traced to each center. Standard and actual costs are then compared and variances analyzed and reported. 3) Variance analysis promotes management action at the earliest possible stages to overcome any discrepancies or problems.

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45 views

Standard Costing and Variance Analysis

1) Standard costing is a budgetary control technique that compares planned standard costs with actual results to obtain variances and stimulate improved performance. 2) Under a standard costing system, standard costs for output are recorded for each responsibility center and actual costs are traced to each center. Standard and actual costs are then compared and variances analyzed and reported. 3) Variance analysis promotes management action at the earliest possible stages to overcome any discrepancies or problems.

Uploaded by

tengku mariana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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STANDARD

COSTING AND
VARIANCE
ANALYSIS
MAF 551
MANAGEMENT
ACCOUNTING AND
CONTROL
STANDARD COSTING SYSTEM

• budgetary control technique


• compares standard costs and revenues
with actual results
• obtain variances
• to stimulate improved performance
OVERVIEW OF STANDARD COSTING
SYSTEM
standard cost of actual actual costs traced
output recorded for to each
each responsibility responsibility
centre centre

standard and actual


costs compared and
variances analysed and
reported

variances investigated
and corrective actions

standards monitored and


adjusted to reflect
changes in standard
usage and/or prices
not the same predetermined
with budget costs

STANDARD COST

target costs that should be


incurred under efficient
operating conditions
a means of
planning and
analysis of controlling
performance

VARIANCE ANALYSIS

to promote management
action at the earliest possible
stages in overcoming any
discrepancies and problems
TYPES OF STANDARDS

2) Ideal standard
1) Basic standard
- a standard which can be
- a standard establish for use
attained under the most
over a long period from which
favourable conditions, with no
a current standard can be
allowance for normal losses,
developed
waste and machine down time.

3) Attainable standard
- a standard which can be 4) Current standard
attained if a standard unit work - a standard established for
is carried out efficiently, a use over a short period of time,
machine properly operated or related to current conditions
material
DETERMINATION OF STANDARDS

METHODS

Engineering Analysis of Management


approach historical data judgement
SOURCES OF INFORMATION

• DIRECT MATERIAL STANDARDS


– material price :
• quotations from suppliers
• trend information from past data
• bulk discounts
• quality of material

– material usage:
• bill of materials
– describes and states the required material for each
operation
SOURCES OF INFORMATION
• DIRECT LABOUR STANDARD
– labour rate:
• from personnel department
• any trade unions negotiations
• bonus scheme
– labour hour:
• technical specifications needed
• unavoidable delays
– machine breakdown, idle time etc

• PRODUCTION OVERHEAD
– predetermined rates (OAR)
– per labour hour/ per machine hour
ADVANTAGES OF STANDARD
COSTING
1. Determine the best 2. Provides a yardstick
possible combination of for performance
resources allocation evaluations a control
and costs that may lead measure; using
to economies of scale. variance analysis.

3. Promote cost 4. Aids in product


awareness pricing.

5. Guide and motivate


6. Leads to a more
workers to follow
accurate budgeting.
standards set.
DISADVANTAGES OF STANDARD
COSTING
Costly in terms of money and Fluctuations in the
time to set and keep up the environment cause
system. ineffectiveness in the system.

Only quantitative factor is


considered in the calculation.
Elaborate variances are
Other non-quantitative factors
unnecessary – materiality of
should also be considered –
variances not easily identified.
quality, lead times, customer
satisfaction etc.

Errors, risks and uncertainties


inherent to actual setting of
standards.
REFERENCES

• Lecture notes, PM Che Hamidah, Prof Dr


Rozainun, Dr Indra Devi
• Langfield- Smith, Management Accounting,
6th edition

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