1.
STANDARD COST
03/27/15 1S.Kacker,IHM Mumbai

2.
A predetermined cost which is computed in
advance of production on the basis of a
specification of all the factors affecting cost
and used in standard costing.
STANDARD CRITERION
STANDARD COST
03/27/15 2S.Kacker,IHM Mumbai

3.
It is a technique of accounting which compares
the standard cost of each product and service
with the actual cost, to determine the efficiency
of the operation, so that a remedial action may
be taken immediately.
STANDARD COSTING
03/27/15 3S.Kacker,IHM Mumbai

4.
1. Helps management in planning, co-
ordination, motivation, control.
2. Measurement of efficiency.
3. Formulation of policies.
4. Cost reporting.
5. Inventory valuation.
ADVANTAGES
03/27/15 4S.Kacker,IHM Mumbai

5.
Cost Variance is the difference between
standard cost and the comparable actual
cost incurred during a period.
Variances are computed under each element
of costs.
Variance provides key to cost control.
COST VARIANCE
03/27/15 5S.Kacker,IHM Mumbai

6.
Variance Analysis is the process of
analyzing variances by sub dividing the
total variance in such a way that
management can assign responsibility
for off standard performance.
VARIANCE ANALYSIS
03/27/15 6S.Kacker,IHM Mumbai

7.
TYPES OF VARIANCE
03/27/15 7S.Kacker,IHM Mumbai

8.
• MATERIAL COST VARIANCE=
(Std Qty x Std Price)- (Actual Qty x Actual Price)
MCV=(SQ x SP) – (AQ x AP)
• MATERIAL PRICE VARIANCE=
(Std price – Actual price) x Actual Qty
MPV= (SP – AP) x AQ
• MATERIAL USAGE VARIANCE=
(Std Qty – Actual Qty) x Std Price
MUV= (SQ – AQ) X SP
MATERIAL VARIANCE
03/27/15 8S.Kacker,IHM Mumbai

9.
• MATERIAL MIX VARIANCE
= STD PRICE(REVISED STD QTY – ACTUAL QTY)
REVISED STD QTY= TOTAL ACTUAL QTY x STD QTY
TOTAL STD QTY
• MMV = SP (RSQ-AQ)x SQ
TOTAL SQ
MATERIAL VARIANCE
03/27/15 9S.Kacker,IHM Mumbai

10.
MATERIAL YIELD VARIANCE
= (STD LOSS ON ACTUAL INPUT –
ACTUAL LOSS ON ACTUAL
INPUT) X STD AVERAGE PRICE / UNIT
03/27/15 S.Kacker,IHM Mumbai 10

11.
• LABOUR COST VARIANCE=
= (STD TIME x STD RATE)- (AT x AR)
• LABOUR RATE VARIANCE=
= (STD RATE – ACTUAL RATE) x ACTUAL TIME
LRV= (SR – AR)x AT
• LABOUR EFFICIENCY VARIANCE
= (STD TIME – ACTUAL TIME) x STD RATE
= LEV- (ST-AT)x SR
LABOUR VARIANCE
03/27/15 11S.Kacker,IHM Mumbai

12.
• LABOUR MIX VARIANCE
= STD RATE(REVISED STD TIME – ACTUAL TIME)
REVISED STD TIME= TOTAL ACTUAL TIME x STD TIME
TOTAL STD TIME
• LMV = SR(RST-AT)x ST
TOTAL ST
• IDLE TIME VARIANCE
= IDLE TIME x STD RATE
= ITV= IDLE TIME x SR
LABOUR VARIANCE
03/27/15 12S.Kacker,IHM Mumbai

13.
• VARIABLE OVERHEAD VARIANCE =
VOV= (STD VARIABLE OVERHEAD – ACTUAL VARIABLE
OVERHEAD)
• FIXED OVERHEAD VARIANCE =
FOV= (STD FIXED OVERHEAD- ACTUALFIXED OVERHEAD)
STD FIXED OVERHEAD= ACTUAL OUTPUT x STD FIXED
OVERHEAD RATE
STD FIXED OVERHEAD RATE= BUDGETED FIXED OVERHEAD
BUDGETED OUTPUT
OVER HEAD VARIANCE
03/27/15 13S.Kacker,IHM Mumbai

14.
FIXED OVERHEAD EXPENDITURE VARAINCE=
FOEV= (BUDGETED OVERHEAD- ACTUAL OVERHEAD)
• FIXED OVERHEAD VOLUME VARIANCE=
FOVV= (STD OVERHEAD- BUDGETED OVERHEAD)
OVER HEAD VARIANCE
03/27/15 14S.Kacker,IHM Mumbai

15.
Following are the particulars in respect of a
product where two types of materials ‘A’ and ‘B’
are required. You are required to calculate
material variances.
MATERIAL VARIANCE
Material SQ(Kg) SP(Rs) AQ(kg) AP(Rs)
A 240 10.0 280 9.50
B 160 7.50 120 9.00
TOTAL QTY 400 400
Less Normal
Loss
40 36
360 364
03/27/15 15S.Kacker,IHM Mumbai

16.
SOLUTION
1) Material Cost Variance
MCV = (SQ x SP) – (AQ x AP)
A = (240 x 10) – (280 x 9.50)
= 2400 – 2660
= -260
B = (160 x 7.50) – (120 x 9.00)
= 1200 – 1080
= +120
MCV = -260 + 120
= -140
Not favorable
03/27/15 16S.Kacker,IHM Mumbai

17.
2. MATERIAL PRICE VARIANCE
MPV= (SP – AP) x AQ
A= (10-9.50)x 280
= 0.50 x 280
= 140
B= (7.50- 9.00) x280
= -1.50 x 120
= - 180
MPV= (140) + (-180)
= -40 – Not Favorable
03/27/15 17S.Kacker,IHM Mumbai

18.
3. MATERIAL USAGE VARIANCE
MUV= (SQ – AQ) x SP
A= (240 – 280) x10
= -40 x10 = -400
B= (160 – 120) x 7.50
= 40 x 7.50 = 300
MUV = -400 +300
-100 NOT FAVOURABLE
VERIFICATION
MCV = MPV +MUV
= (-40) + (-100)
= -14003/27/15 18S.Kacker,IHM Mumbai

19.
CALCULATE LABOUR VARIANCES
WORKER ST(HRS) SR(RS) TOTAL
(RS)
AT (HR) AR(RS) TOTAL
(RS)
SKILLED 20 3 60 30 3 90
UNSKILLED 25 4 100 15 4.5 67.50
45 45
SOLUTION
1)LABOUR COST VARIANCE= (ST x SR) – (AT x AR)
SKILLED = (20 x 3) – (30 x 3)
= -30
UNSKILLED = (25 x 4) – (15 x 4.5)
= 32.5
LCV= -30 + 32.5
= 2.5
(F)03/27/15 19S.Kacker,IHM Mumbai

20.
2) LABOUR EFFICIENCY VARIANCE = (ST – AT) x SR
Skilled= (20 - 30) x 3
= -30
Unskilled = (25 -15) x4
= 40
= -30 + 40 =10
(F)
03/27/15 20S.Kacker,IHM Mumbai

21.
3) LABOUR RATE OR PAY VARIANCE
= (SR –AR) x AT
Skilled = (3 – 3) x30 = 0
Unskilled= (4 - 4.5) x 15 = -7.5
LRPV= 0 + (-7.5) = -7.5
Verification
LCV = LEV + LRPV
= 10 +(- 7.5)
= 2.5 (F)
03/27/15 21S.Kacker,IHM Mumbai

22.
SALES VARIANCES
A) Sales value variances =
= (Actual Qty x Actual price) – (Std Qty x Std price)
SVV = (AQ x AP) – ( SQ x SP)
B) Sales volume variance=
= (Actual Qty – Std Qty) x Std price
SVOV= (AQ – SQ) x SP
03/27/15 22S.Kacker,IHM Mumbai

23.
C) Sales price Variance =
=( Actual price – Std price) x Actual Qty
SPV = ( AP – SP) x AQ
D) Sales mix Variance=
= Std price ( Actual Qty - Revised Std Qty)
Revised Std Qty = Total Actual Qty x Std Qty
Total Std Qty
SMV = SP ( AQ – RSQ)
RSQ= Total AQ x SQ
Total SQ
03/27/15 23S.Kacker,IHM Mumbai

24.
PROFIT VARIANCES
• Value Variance
VV = Budgeted profit – Actual profit
• Price Variance
PV = Std Profit – Actual Profit
Where Std Profit = Actual Qty x Budgeted Profit/ unit.
• Volume Variance
VOV = Budgeted Profit – Std Profit
03/27/15 24S.Kacker,IHM Mumbai

25.
SALES VARIANCE
CALCULATE SALES VARIANCES
03/27/15 25S.Kacker,IHM Mumbai

26.
ACTUAL
P 8000 11 88,000 10 80,000 1 8,000
Q 6000 12 72,000 6 36,000 6 36,000
14,000 1,60,000 11,6000 44,000
BUDGET
P 10,000 15 15,0000 10 100,000 5 50,000
Q 5,000 10 5,0000 6 30,000 4 20,000
15,000 2,00,000 1,30,000 70,000
03/27/15 26S.Kacker,IHM Mumbai

27.
SOLUTION
1. SALES VALUE VAR: (AQ x AP) – (SQ x SP)
P = (8,000 x 11) – (10,000 x 15)
= 88000 – 15,0000 = -62000
Q = (6000 x 12)- (5,000 x 10)
72,000 – 50,000 =22,000
SVV = -62,000 + 22,000 =-
40,000
03/27/15 27S.Kacker,IHM Mumbai

28.
SALES PRICE VARIANCE = (AP x SP) x AQ
P = (11- 15) x 8000 = -32,000
Q=(12-10) x 6000 = 12,000
SPV= -32,000 +12,000 = -20,000
SALES VOLUME VAR: (AQ –SQ) x SP
P = (8,000 -10,000) x 15 =-30,000
Q= (6000 – 5000) x 10 =10,000
SVV = -30000 +10,000 = - 20,000
03/27/15 28S.Kacker,IHM Mumbai