Module 6 – Standard Costing
June 4, 2001
Costing Systems
Actual Full Absorption (job order & process)
Normal Full Absorption (job order)
Variable (job order & process) – (internal only)
Activity- Based (job order & process)
Standard Costing (process)
Standard Costing
Mfg Standards are set for:
Quantity of each input
Price of each input
Actual Costs are captured for period
Variances are calculated
Total Costs must be adjusted (for
variances) for external reporting
purposes
Standard Costing
For Internal Purposes…
Product is costed at standard
Variance Analysis tells where
problems might be…
Standards
Stated in terms of input required…
…FOR ONE UNIT OF OUTPUT
Ideal Standard or Practical standard?
Example:
Standard: for each unit of output, the mfg
process should use 2.00 gallons of material,
and require 1.00 man hour of labor.
Material should cost $5.00 per gallon, and labor
should cost $13.00 per manhour.
Overhead is charged at $10 per labor hour.
Product Cost at Standard
2 gallons per unit x $5/gallon = $10 materials
1 manhour per unit x $13/mhr = $13 labor
1 manhour per unit x $10/mhr = $10 overhead
TOTAL PRODUCT COST: $33 per unit
Example:
During August, the plant produced 24,000
units of output.
Actual material cost was $246,020.
Actual labor cost was $295,680.
Actual overhead cost was $263,000.
Party? Or Stuff hitting the fan?
Example:
During August, the plant produced 24,000
units of output.
24,000 x 2 gallons = 48,000 gallons
48,000 gallons x $5/gal =
$240,000 material cost
Example:
During August, the plant produced 24,000
units of output.
24,000 x 2 gallons = 48,000 gallons
48,000 gallons x $5/gal =
$240,000 material cost
$240,000 standard vs. $246,020 actual cost
Closer Look…
Actual gallons used: 47,040 gallons
Standard gallons allowed: 48,000 gallons
Actual price paid per gallon: $5.23
Standard price per gallon: $5.00
Variance Analysis…
AQxAP AQxSP SQxSP
47040 47,040 48,000
x x x
$5.23 $5.00 $5.00
$246,020 $235,200 $240,000
Variance Analysis…
AQxAP AQxSP SQxSP
47040 PRICE
47,040 48,000
QUANTITY
x VARIANCE x VARIANCE x
$5.23 $5.00 $5.00
$246,020 $235,200 $240,000
Variance Analysis…
AQxAP AQxSP SQxSP
47040 PRICE
47,040 48,000
QUANTITY
x VARIANCE x VARIANCE x
$5.23 $5.00 $5.00
$246,020 $235,200 $240,000
$10,820 (u) $4800 (f)
Closer Look…
Actual labor hours used: 26,400 hours
Standard hours allowed: 24,000 hours
Actual rate paid per hour: $11.20
Standard rate per hour: $13.00
Variance Analysis…
AQxAP AQxSP SQxSP
26,400 26,400 24,000
x x x
$11.20 $13.00 $13.00
$295,680 $343,200 $312,000
Variance Analysis…
AQxAP AQxSP SQxSP
26,400 RATE
26,400 24,000
EFF’Y
x VARIANCE x VARIANCE x
$11.20 $13.00 $13.00
$295,680 $343,200 $312,000
$47,520 (f) $31,200 (u)
Overheads?
Variance Analysis…
AQxAP AQxSP SQxSP
26,400 24,000
x x
$10.00 $10.00
$263,000 $264,000 $240,000
Variance Analysis…
AQxAP AQxSP SQxSP
26,400 24,000
SPENDING
x EFF’Y
x
VARIANCE $10.00 VARIANCE $10.00
$263,000 $264,000 $240,000
$1000 (f) $24,000 (u)
Summary
Price or Usage or Total
Rate Efficiency Variance
Materials $10,820 (u) $4,800 (f) $6,020 (u)
Labor $47,520 (f) $31,200 (u) $16,320 (f)
Overhead $1000 (f) $24,000 (u) $23,000 (u)
$12,700 (u)
Product Cost at Standard
2 gallons per unit x $5/gallon = $10 materials
1 manhour per unit x $13/mhr = $13 labor
1 manhour per unit x $10/mhr = $10 overhead
TOTAL PRODUCT COST: $33 per unit
$33.00 per unit X 24,000 units = $792,000
Example:
During August, the plant produced 24,000
units of output.
Actual material cost was $246,020.
Actual labor cost was $295,680.
Actual overhead cost was $263,000.
Total Mfg cost was $804,700
Example:
Standard Cost ($33.00 per unit): $792,000
Actual Cost ($33.53 per unit): $804,700
Total Variance: $12,700 (u)
Standard Costing
Requires Variance Analysis
Materials: Price and Usage
Labor: Rate and Efficiency
Overhead: Spending and Efficiency
Gives Richer Information about
Problem Areas
External Reporting … (!)