1. 1 Brenda Mallouk Standard Costing I Management Accounting One

2. 2 Brenda Mallouk Product Costing Type of System Inclusiveness of Cost Job Cost Process Cost Actual M. L. & O/H Actual M & L Predetermined Overhead Standard M. L. & O/H Absorption Costing Variable (Direct) Costing Collecting the Cost

3. 3 Brenda Mallouk What is It ? Standard cost is the amount management thinks a product or the operation of a process should cost, based upon certain assumed conditions of efficiency Standard Costing

4. 4 Brenda Mallouk Standard Costing –Show the costs that should have been incurred? –Allows for investigation of the cause of the variances

5. 5 Brenda Mallouk Standard Cost Is The Planned Cost Variances from standard can result from: ?

6. 6 Brenda Mallouk Developing Standards Ideal standards – assumes operating conditions will be ideal; maximum efficiency at all times; usually will have unfavourable variances. Attainable standards – recognizes there will be some operating inefficiencies; will have both favourable and unfavourable variances.

7. 7 Brenda Mallouk Standard Cost Card Standard Cost, Product #1 Material A12 kilos @ $ 5 Standard Cost Material B 4 litres @ $ 3 $60 12 Direct Labour 2 hrs. @ $1428 Mfg. Overhead2 hrs. @ $10 20 Total$120 Standard Quantity Standard Price

8. 8 Brenda Mallouk Material Variances Standard Cost For Material Composed of Two Factors -- 1. Price that should be paid for the material and 2. Quantity of material that should be used to produce each unit of output

9. 9 Brenda Mallouk Quantity Purchased Quantity Used At Time of Purchase Price Variance Isolated Standard Cost Actual Cost Inventory Carrying Cost At time of Use Timing Price Variance Calculation Material Purchase Price Variance Material Usage Price Variance

10. 10 Brenda Mallouk Material Purchase Price Variance Variance = Actual Quantity Purchased x (Actual Unit Price - Standard Unit Price Material Usage Price Variance Variance = Actual Quantity Used x (Actual Unit Price - Standard Unit Price Material Price Variances

11. 11 Brenda Mallouk Material Quantity Variance Results from the use of more or less raw material than provided for by the material standard. * Standard quantity for the production attained Variance = Standard Price x (Actual Material Quantity - Standard Material Quantity*)

12. 12 Brenda Mallouk Net Material Variance Net Variance Act. Qty. X Act Price Act. Qty. X Std. Qty. X MPV MQV (ACT. P - STD. P) X ACT QTY (ACT. QTY - STD QTY) X STD P Std. Price

13. 13 Brenda Mallouk Labour Variances Standard cost for labour is composed of two factors -- 1. Rate that should be paid for labour hours and 2. The amount of time required to produce each unit of output (efficiency)

14. 14 Brenda Mallouk Labour Rate Variance Variance = Actual Hours x (Actual Rate - Standard Rate) Difference between the Actual Rate Paid and the Standard Rate allowed times the actual number of hours worked.

15. 15 Brenda Mallouk Labour Efficiency Variance Variance = (Actual Hours - Standard Hours) X Standard Rate Difference between the Actual Hours worked and the standard hours allowed for the output attained times the standard labour rate.

16. 16 Brenda Mallouk Labour Variances Net Variance Act. Hrs. Std.. Hrs. X LRV LEV (ACT. R - STD. RATE) X ACT HRS. (ACT. HRS.- STD HRS.) X STD RATE X Act. Rate X Std. Rate

17. 17 Brenda Mallouk The X Files Company Direct Labour 8.7 min./unit @ $3.00 /hour Materials 3 cm @ $0.50 per cm During a recent month the firm produced 6,000 units and incurred the following costs: 25,000 cm purchased at $0.60 per cm 20,000 cm used Direct labour 1,000 hours at a total cost of $3,250 X Files manufactures a special Nanny Spy Tool. The firm has developed the following standards for one:

18. 18 Brenda Mallouk Standard Cost Card Standard Cost, Product #1 Material 3 cm @ $0.50 cm Standard Cost $ Direct Labour 8.7 min. @ $3 per hour Standard Quantity Standard Price Calculate the Variances

19. 19 Brenda Mallouk What are the Causes?