Cost & Management

Accounting
Prof. Asim Mehta
Management Accounting

➢ Standard Costing

➢ Numerical Problems
Prof. Asim Mehta
Standard Costing
Standard Costing

The process of setting up predetermined cost estimates in

order to provide for a basis for comparison with actual
costs.

It is universally accepted as an effective method for cost

control and analysis.

It is linked very closely with the budgetary process where

costs are analysed before they are estimated.
Standard Costing

Variance Analysis

• Material Cost Variances

• Labour Cost Variances

Standard Costing

Material Cost Variances (A)

Material Usage Variances (C)

Material Price Variance (B)

Variances (D)
Material Mix
Variances (E)
Material Yield
Standard Costing

Labour Cost Variances (A)

Labour Efficiency Variances (C)

Labour Rate Variance (B)

Variances (D)
Labour Yield
Variances (E)
Labour Mix
Calculations

A - Cost Variance:

[Std Unit x Std Price] - [Actual Unit

x Actual Price] B

– Price Variance:

Actual Quantity (Std price

p.u – Actual price p.u.)

C – Usage Variance

Std price p.u. (Std qty –

Actual qty)
Calculations

D – Mix Variance:

Std price p.u. (Revised Std qty*

– Actual qty)

* Revised Std qty =

Total qty of actual mix x
Std qty

Total qty of std mix

 E – Yield Variance
Std Cost p.u. (Std cost for actual mix
–
Actual output)