Standard cost system is using information from historical data, inputs from factory personnel

and data relevant to the industry and technology that relates to the manufacturing process
to determine the amount that the manufacturing activity should cost and compares it to the
amount that it actually costs.

Advantages:

1. Establishing budget

2. Cost control

3. Price setting

4. Cost awareness

Direct Materials

1. Material price variance – is the actual price less standard price multiplied by actual
quantity. It is usually the purchasing department that is responsible for material price
variance

(Actual price – Standard price) x Actual quantity

2. Material quantity (or efficiency) variance – is the actual quantity less the standard
quantity multiplied by standard price. The production department or cost center that
controls the direct materials into the production process

(Actual quantity – Standard quantity) x Standard price