Standard Costing
Standard Costing
Standard Costing
Costing
Learning Outcomes
Favourable Variances
When actual cost is less than standard cost, it is
known as favourable variance.
Unfavourable Variances
When the actual cost is more than standard cost, it is
known as unfavourable variance.
Controllable Variances
Uncontrollable Variances
Types of Variances
Controllable Variances
If a variance can be regarded as the responsibility of a
particular person, with the result that his degree of
efficiency can be reflected in the size, then it is said
to be controllable variance.
Uncontrollable Variances
If a variance arises due to certain factors beyond the
control of management, it is known as
uncontrollable variances.
Types of Variances
Methods Variance
If variances arises because of the use of different
method of production which will give rise to
different amount of cost, such a variance is known
as methods variance.
Revision Variance
After setting standards, sometimes standard cost has
to be revised on account of unavoidable changes.
The standard cost once set is nit disturbed again,
instead a revision variance is created (Diff between
standard cost & revised standard cost).
Material Cost Variance
(MCV)
This is the difference between the standard cost of
direct materials specified for the output achieved
and actual cost of direct materials used.
It is calculated as:
MCV= Standard cost of actual output-Actual cost
Where, standard cost= Std. Qty for actual
output*Std.price
Actual cost= Actual qty* actual price
Cause of variance
• The cause for material price variance can be
many including changes in the prices, poor
purchasing procedures, deficiencies in price
negotiation.
Material cost variance
(Importance)
• It gives an idea of how much more or less cost
has been incurred when compared with the
standard cost.
• This analysis of variance is an important tool
to be a tab on the deviations from the
standard set by the company.
MCV
Material Price Variance
(MPV)
Pilferage
Wastage
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