P5Ch5StandardCosting

Transcription

1 P5Ch5StandardCosting

2 Standard means a criterion or a yardstick against which actual activity can be compared to determine the difference between the two. Standard cost is the pre-determined cost based on technical estimates for materials, labour and overhead for a selected period of time for a prescribed set of working conditions. Standard Costing is the preparation and use of standard costs, their comparison with the actual costs and the analysis of variances to their causes and points of incidence.

3 APPLICABILITY OF STANDARD COSTING Where a sufficient volume of standard products or components is produced. Where Methods, operations and processes are capable of being standardised. Where a sufficient number of costs are capable of being controlled.

4 Advantages of Standard Costing Facilitates Planning Facilitates Cost Control Facilitates Coordination Reveals the areas of avoidable, wastages & losses, idle capacity Limitations of Standard Costing Settling of Accurate Standards Revision of standards Expensive Non facilitate cost reduction

5 STEPS INVOLED IN STANDARD COSTING Setting up of Standards Ascertainment of Actual Costs Comparison of Standard and Actual Costs to determine Variances, and Investigation of variances and taking appropriate action thereon wherever necessary

6 Variance Analysis Variances Variance analysis is the analysis of the cost variance into its components parts and the explanation of variances Expectations Less Actuals Cost Variance Expected / Standard Cost Less Actual Cost Sales Variance Expected / Budgeted Sales Less Actual Sales

7 Based on Classification 1. Type of Cost a) Material b) Labour & c) Overheads 2. Casual Factor a) Variances of Efficiency b) Variances of Prices c) Variances of Volume 3. Impact on profit a) Favourable b) Adverse

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9 STEPS TO REMEMBER: 1) Period : Standard or budgeted period and actual period must be same, if period are different then we have to revise budget for actual period. 2) Table. 3) Mix Variances : Actual Sales quantity in standard ratio. 4) Variances.

10 Steps 1) Period = Budgeted & Actual should be same 2) Table : Budgeted Actual Product Qty. Price Rs. Product Qty. Price Rs. A ,000 A ,900 B ,000 B , / , ,500 3) Mix Variances : Actual Quantity in Standard Ratio 4) Variances : 4500 ( 1 : 2) A B Sales Value Variances = 50, ,500 = 24,500 (F) Sales Price Sales Volume A 1100 (10-9) = 1100 (A) A 10 ( ) = 1000 (F) B 3400 (20-19) = 3400 (A) B 20 ( ) = (F) 4500 (A) 29000(F) Sales Mix Variances Sub Volume A 10 ( ) = 4000 (A) 50,000 * ( ) B 20 ( ) = 8000 (F) (F) = (F)

11 POINTS TO REMEMER : Selling Price Variances Sales Volume Variance We have to compare standard selling price with actual selling price and difference is X by actual sales quantity. We have to compare standard sales quantity with actual sales quantity and difference is X by standard selling price. Mix Variances We have to compare actual sales quantity in standard ratio with actual sales quantity and difference is X by Standard Selling Price Sub Volume Variances We have to compare total standard quantity with total actual quantity and difference is X by Weighted Average Standard Selling Price

12 PROFIT VARIANCES Illustrations: Toys Ltd. had budgeted the following for a month: Toy X 900 units at Toy Y 600 units at Toy Z 1500 units at Rs. 50 per unit Rs. 100 per unit Rs. 75 per unit As against this, the actual sales were : Toy X 1000 units at Toy Y 700 units at Toy Z 1100 units at Rs. 55 per unit Rs. 95 per unit Rs. 78 per unit The standard costs per unit & Actual costs per unit Toy X Rs. 45 per unit Toy Y Rs. 85 per unit Toy Z Rs. 65 per unit Toy X Rs. 50 per unit Toy Y Rs. 80 per unit Toy Z Rs. 70 per unit Compute necessary profit variances & Analysis of profit variances.

13 PROFIT VARIANCES Steps No. 1 to 4 of Sales Variances remains same in Profit Variances also. 1) Period : Budgeted and Actual Should be Same. 2) Table Budgeted Per Unit Product Quantity Selling Price Cost Profit Total Profit x = 4,500 y = 9,000 z = 15, / 3000 = Rs ,500 Actual Per Unit Product Quantity Selling Price Cost Profit Total Profit x = 5,000 y = 10,500 z = 8, ,300 3) Actual Sales in Standard Ratio : 2,800 (9 : 6 : 15) X (9 / 30) Y (6 / 30) Z (15 / 30) ) Variances :

14 4) Variances : Profit Variance = 28,500 24, 300 = 4,200 (A) PV due to change PV due to change in Sales in cost (WN 1) 2800 (F) 7000 (A) Selling Price Variance Profit Volume Variance x 1000 (50-55) = 5000 (F) x 5 ( ) = 500 (F) y 700 (100-95) = 3500 (A) y 15 ( ) = 1500 (F) z 1100 ( 75 78) = 3300 (F) z 10 ( ) = 4000 (A) 4800 (F) 2000(A) Profit Mix Variance Profit Sub Volume Variance x 5 ( ) = 800 (F) y 15 ( ) = 2100 (F) 9.50 ( ) z 10 ( ) = 3000 (A) = 1900 (A) 100 (A) WN1) PV due to change in Cost x y z 1000 (45 50 ) = 5000 (A) 700 (85 80 ) = 3500 (F) 1100 (65 70) = 5500 (A) 7000 (A)

15 I. As per Marginal Costing there is only in One Variance i.e. Fixed Overheads Variances Fixed Overhead Expenditure = Budgeted Overhead - Actual Overhead II. As per Absorption Costing the variances are as follows : 1) Period : Budgeted and Actual Should be Same. 2) Table : Budgeted Actual Output Rate Overhead Output Overhead ,00, ,10,000 Days Rate Overhead Days ,00, Hours Rate Overhead Hours 1,25, ,00,000 Gross 1,24,000 Idle (1,000) Net 1,23,000 3) Capacity (in terms of Hours) 4) Efficiency (in terms of Output) Efficiency (in terms of Hours) OR Days Hrs Hours Output Output Hours 250 1,25,000 1,25,000 25, ,25, ? 1,23,000? 24000? (1,26,000) (24,600) (1,20,000)

16 5) Variances : Fixed Cost Variance = Absorption overhead Actual Overhead = (24,000 x 4) 1,10,000 = 96,000 1,10,000 = 14,000 (A) Expenditure Variance Volume Variance Budgeted Overhead Actual Overhead = 4 x ( ) = 1,00,000 1,10,000 = 4000 (A) = 10,000 (A) OR = Absorption Rate (Budgeted Output) Actual Output = Budgeted Overhead Absorption Amount = 1,00,000 96,000 = 4,000 (A)### Calendar Variance Capacity Variance Idle Efficiency ( in terms of Hours) (in terms of Output) = 400 ( ) = 0.80 ( 1,26,000 1,24,000) = 1000 x 0.80 = 4 (24,600 24,000) = 800 (F) = 1600 (A) = 800 (A) = 2,400 (A) (Always) OR Efficiency (in terms of Hours) = 0.80 (1,20,000 1,23,000) = 2,400 (A) Note : ### How do we know that Volume Variance is Favorable or Adverse? Ans : If we absorption amount is < budgeted overhead, that means actual output is < budgeted output. Therefore the corresponding variances are adverse.

17 MATERIAL COST VARIANCE 1) Output : Given Standard = 80 Units whereas Actual = 400 Units Therefore we have to make Revised Standard which is = 400 Units 2) Table : Given Standard Revised Standard Actual Type Qtuantity Price Quantity Price Rs. Quantity Price Rs. x , ,500 y , ,450 INPUT / 500 = 6 3, ,950 Loss (20) (100) (250) OUTPUT ) Standard Quantity for Actual Output Output Input ? (500) 4) Actual Input Quantity in Standard Ratio 650 (1 :!) X( 1 / 2 ) Y ( 1 / 2 ) ) Variances :

18 5) Variances : MATERIAL COST VARIANCES = ( ) = 950 (A) Price Variance Usage Variance x 300 ( 4 5 ) = 300 (A) x 4 ( ) = 200 (A) y 350 ( 8 7 ) = 350 (F) y 8 ( ) = 800 (A) 50 (F) 1000 (A) Mix Variance Sub Usage Variance / Yield Variance / Input Method x 4 ( ) = 100 (F) = 6 ( ) y 8 ( ) = 200 (A) = 900 (A)** 100 (A) ** Alternative ways of Solving Sub Usage Variance / Yield Variance / Input Method : Loss Method Output Method Mix Method Normal Loss = 650 x 20 % = 130 Normal Output = 650 x 80 % x 4 ( ) = 300 (A) Abnormal Loss = = 120 = 520 y 8 ( ) = 600 (A) 900 (A) 3000 x 120 = 900 (A) 3000 x ( ) = 900 (A)

19 Steps to follow for Material Cost Variances : 1) Output 2) Table 3) Standard Input quantity for Actual Output 4) Actual Input quantity in Standard Ratio 5) Variances Points to Remember : 1) If given Standard & Actual Output are given in batches, then we have to prepare Revised Standard for Actual number of batches. 2) If Output of given Standard & Actual are different then we have to prepare Revised Standard for Actual Output 3) If given Standard Total Input quantity is given in terms of ratio or percentage, then it is better to presume that given Standard Input quantity is 100.

20 4) If information is given in question regarding Opening Stock of Raw Materials and Closing Stock of Raw Materials or both, then Actual Purchase & Consumption quantity are different. Therefore we have to follow either Single Plan or Partial Plan for MATERIAL PRICE VARIANCE. 5) Single Plan vs. Partial Plan Particulars Single Plan Partial Plan 1) Material Price Vari. Actual Purchase Qty Actual Consumption Qty. 2) Valuation of Stock Standard Price Actual Price 3) Method of Valuation of Stock FIFO, LIFO are IRRELEVANT, FIFO,LIFO are RELEVANT 6) If information is given in question regarding Opening Work in Progress or Closing Work in Progress or both, then Actual Output means Actual Equivalent Output (Prepare as per Process Costing).

21 MATERIAL COST VARIANCE Illustration : MJ Ltd. manufactured product A, each unit of which requires 2 kgs. of raw materials P1 & 3 kgs. of raw materials P2, to be bought at Rs.5/- & Rs. 10/- respectively. During the year, the company completed the production of 9600 units & it had 4000 units in closing work-in-progress which are estimated to be 60% complete as regards raw material. The details about purchases & stocks are given below:- Particulars Type Qty. Actual Price 1 Opening Stock P1 4,000 Rs.6/- P2 8,000 Rs.8/- 2 Purchases P1 28,000 Rs.4.50/- P2 34,000 Rs.11/- 3 Closing Stock P1 6,000? P2 10,000? You are required to calculate necessary material cost variances based on: (i) Single Plan (ii) Partial Plan

22 EXAMPLE 1) Actual Equivalent Output : As per FIFO Method Material Particulars Qty Qty % 1) Opening WIP NIL NIL Nil 2) Started & Finished during the year ) Closing WIP ,000 2) Statement Showing Given Standard and Revised Standard : a) OUTPUT : Given Standard = 1 Unit Actual Output = 12,000 Units Revised Standard = 12,000 Units b) TABLE : Given Standard Revised Standard Type Kgs. Price Kgs. Price Rs. P , ,20,000 P , ,60,000 60, ,80,000 i ) Variances based on Single Plan Table: Actual Particulars Qty. Price Rs. P1 Opening Stock RM ,000 Add: Purchases 28, ,26,000 Less: Closing Stock RM (6000) 5 (30,000) A ,16,000 P2 Opening Stock RM ,000 Add: Purchases ,74,000 Less: Closing Stock RM (!0000) 10 (!,00,000) B ,54,000 TOTAL (A + B) ,70,000 ===== ========

23 EXAMPLE (Continue) c) Actual Input quantity in Standard Ratio 58,000 ( 2 : 3 ) P1 P2 23,200 34,800 d) Variances : MATERIAL COST VARIANCES = ( 4,80,000 4, 70,000 ) = 10,000 (F) Price Variance Usage Variance P1 28,000 ( ) = 14,000 (F) P1 5 ( 24,000 26,000 ) = 10,000 (A) P2 34,000 ( ) = 34,000 (A) P2 10 ( 36,000 32,000 ) = 40,000 (F) 20,000 (A) 30,000 (F) Mix Variance Material Yield Variance P1 5 ( 23,200 26,000 ) = 14,000 (A) = 8 ( 60,000 58,000 ) P2 10 ( 34,800 32,000 ) = 28,000 (F) = (F) 14,000 (F)

24 EXAMPLE (Continue) ii) a) Variances based on Partial Plan Stock Valuation based on FIFO Method Table : Actual Particulars Qty Price Amount P1 Opening Stock of RM ,000 Add : Purchases ,26,000 Less : Closing Stock of RM (6000) 4.50 (27,000) A 26,000 1,23,000 P2 Opening Stock of RM 8, ,000 Add : Purchases 34, ,74,000 Less : Closing Stock of RM (10,000) 11 (1,10,000) B 32,000 3,28,000 Consumption ( A + B ) 58,000 4,51,000 ===== ======= b) Variance : Material Cost Variance = 4,80,000 4,51,000 = 29,000 (F) Price Variance Usage 1000 (A) (WN 1) 30,000 (F) Mix Variance Yield Variance 14,000 (F) 16,000 (F) WN 1 = Material Price Variance P1 P2 Total Opening Stock 4000 ( 5 6 ) = 4,000 (A) Opening Stock 8000 ( 10 8 ) = 16,000 (F) From Current From Current year purchase ( ) = (F) year purchase ( ) = 24,000 (A) (26,000 4,000) 7,000 (F) ( ) 8,000 (A) 1,000 (A)

25 LABOUR VARIANCES JVS Ltd. Manufactures product X which requires 2 hours of skilled men, 3 hours of semiskilled men & 5 hours of unskilled men per unit at Rs.5, 3 & 2 per hour respectively. During March, 2012, the production department reported output of 10,000 units of product X. The labour cost incurred was as detailed below TYPE HOURS PAID FOR RATE PER HOUR Skilled 18,000 Rs.7.00 Semi skilled 34,000 Rs.2.75 Unskilled 60,000 Rs ,12,000 The total hours paid for included 2,000 idle hours due to machine break down etc, out of which 1,000 hours pertained to skilled men, 800 hours pertained to semi skilled men & balance to unskilled men. a) Calculate labour cost variances b) Recalculate the labour cost variances, given that the break up 2,000 idle hours is not given.

26 LABOUR VARIANCES 1) Output : Given Standard = 1 Unit, Actual = 10,000 Units, Therefore Revised Standard = 10,000 Units 2) Table : Given Standard Revised Standard Actual Type Hours RPH Hours RPH Rs/ Net Hours Idle Hours Gross Hours RPH Rs. Skilled , ,00,000 17, , ,26,000 Semi-Skilled , ,000 33, , ,500 Unskilled , ,00,000 59, , ,000 1,00, ,90,000 1,10, ,12, ,500 3) Actual Hours in Standard Ratio : 1,10,000 ( 2 : 3 : 5 ) Skilled Semi-skilled Unskilled 22,000 33,000 55,000

27 4) Variances : LABOUR COST VARIANCES = 2,90,000 3,09,500 = 19,500 (A) Rate Variance Time Variance Skilled 18,000 ( 5 7 ) = 36,000 (A) Skilled 5 (20,000 18,000) = 10,000 (F) Semi-skilled 34,000 ( ) = 8,500 (F) (A) Semi-skilled 3 (30,000 34,000) = 12,000 Unskilled 60,000 (2 1.50) = 30,000 (F) Unskilled 2 (50,000 60,000) = 20,000 (A) (F) 22,000 (A) Idle Mix Variance Efficiency Variance Skilled 1000 x 5 = 5000 (A) Semi-skilled 800 x 3 = 2400 (A) 2.90 x (1,00,000 1,10,000) =29,000 (A) 5 ( 22,000 17,000 ) =25000 (F) 3 ( 33,000 33,200 ) = 600 (A) Unskilled 200 x 2 = 400 (A) 2 ( 55,000 59,800 ) = 9,600 (A) 7,800 (A) 14,800 (F)

28 VARIABLE OVERHEADS 1) Output : Given Standard = 1 Unit, Actual = 3,500 Units, Revised Standard = 3,500 Units 1) Table: Given Standard Revised Standard Actual Hours RPH Hours RPH Rs. Net Hours RPH Rs , ,250 17, ,400 3) Variances : VARIABLE OVERHEAD COST VARIANCE = ( 5,250 5,200 ) = 50 (F) Expenditure / Spending Variances Efficiency Variance = 17, ,200 = 0.30 ( 17,500 17,400 ) 17,400 = 30 (F) = 20 (F)

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