# Standard Costing

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## Standard Costing

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### ... variances computed automatically are production-related variances ... Variance accounts pick up the differences between budget and actual. Production Variances ... – PowerPoint PPT presentation

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Title: Standard Costing

1
Standard Costing
2
Production Variances
• The most common variances computed automatically
are production-related variances
• This is usually called a STANDARD COSTING SYSTEM
• All inventory costs are recorded at budgeted
amounts (the standard amounts)
• Variance accounts pick up the differences between
budget and actual

3
Production Variances
• Direct materials
• Price variance
• Quantity variance
• Direct labor
• Rate variance
• Efficiency variance
• Spending variance
• Efficiency variance
• Budget variance
• Volume variance

The computations are similar to what we
illustrated for sales. You change one element at
a time and, from the difference, determine the
impact on costs (instead of sales)
4
Standard Budget is Different from Flexible Budget
• In flexible budget is more OUTPUT oriented,
• Standard budget is more INPUT oriented regarding
production costs.
• Interpretations are How efficiently firms use
the materials, labors, and FOH.

5
Production variances
6
Direct Labor Example
• Budgeted labor costs to make one widget
• 2,200 widget production
• ½ hour (manufacturing labor) hours
• 20 per hour for manufacturing worker
• Therefore, the standard DL cost per widget
10
• Assume actual production 2,000 widgets
• 1,200 direct labor hours
• Average rate of pay 19 per hour

7
DL variance example
8
DL variance example - solution
Rate Variance 1,200 F
9
Example
• ABC company manufactures a product that has the
direct materials, standard cost presented below.
Find the price and efficiency variance for direct
materials and direct labors.
• Standard cost for direct materials direct
labors
• 1.60 lbs. _at_ 2.50 per lb. 4.00
• 30 min. _at_ 10 per hr.

10
Exam Topics
• Multiple Choice Problems 15 _at_ 2 points
• Operating Budget Process
• Cash Budget
• Performance Analysis Variance Analysis
• ABC Costing
• Break-Even-Point
• Variable-Absorption Costing