Professional Documents
Culture Documents
9/23/2011
Delegation of Authority and Responsibility :The sphere of :The operation of adverse variations is disclosed and particular production department or centre can be held accountable. The delegation of responsibility and authority can be made by the management to control the affairs in different departments. Management by Exception: Management by exception can be made applicable in the business and the management can concentrate on cases which are off standard. Better Economy, Efficiency and Productivity: Managerial review of costs is more effective as the operations are scrutinized carefully and inefficiencies are disclosed.
Heavy costs :Fixation of standards may be costly and may :Fixation require high skill and competence. Frequent Revision Required :Revision of standards is a :Revision tedious and costly process. Unsuitable for Non-standardized Products: Industries Nondealing in non- standardized products may find the system nonunsuitable and costly. Fixation of Responsibility Difficult: Responsibility can be fixed only when controllable and non controllable factors are distinctly known Adverse Psychological Effects: Standards may be fixed at a high level which is unachievable, resulting in frustration or building up of resistance.
4
9/23/2011
Standard costs may be: (i) IDEAL, (ii) Expected, and (iii) Normal/Attainable.
Ideal standard cost The ideal standard cost refers to estimates of costs under ideal or perfect conditions. The assumption would be that there would be no waste, no scrap, no idle items, no machine breakdown, and so on. Expected Standard Cost The expected standard cost is based upon the most likely attainable result. Technically, it means what can happen and not what should happen. Normal Standard Costs Normal standard costs are costs which are attainable if operations/activities are efficient.
9/23/2011
Reasonable or Desired Level of Attainment :Standards are :Standards to be set assuming efficient working conditions and reasonable good performance. Active Level: The level of activity or performance required must be decided upon before establishing any standards. It should be computed keeping in mind the capacity of the plant and the marketability of the products.
Cost Variances
The deviation of the actual from the standard is known as variance. Variance may be favourable or adverse. Cost Variance may be depicted in the following manner: Cost Variances
9/23/2011
Direct Material Cost Variance: It is the difference between the standard cost of direct material specified for the output achieved and the actual cost of direct material used. = (Total Standard cost for actual output) Total Actual Cost = ( Std. Price x Std Quantity for _ ( Actual Price x Actual actual output) quantity)
9
Direct Material Price Variance : That portion of direct material cost variance which is due to the difference between the standard price specified and actual price paid. = ( Actual Qty used) x ( Std Price Actual Price ) Direct Material Usage Variance : That portion of direct material cost variance which is due to the difference between the standard quantity specified and the actual quantity used. = ( Std. Rate ) x ( Std. qty for actual output Actual qty ) Direct Material Mix Variance: That portion of direct material Variance: usage variance which is due to the difference between the standard and actual composition of a mixture. = ( Std. Price ) x (Revised Std. Qty Actual Qty)
10
9/23/2011
11
Direct Labour Cost Variance: It is the difference between standard direct wages specified for the activity achieved and the actual direct wages paid. = ( Std. cost for actual output ) - ( Actual Cost ) = ( Std rate x Std Time for Actual Output) ( Actual rate Actual Time )
12
9/23/2011
Direct Labour Rate Variance : That portion of direct labour cost variance which is due to the difference between the standard rate of pay specified and the actual rate paid. = Actual Time x ( Std. Rate Actual Rate ) Direct Labour Efficinecy Variance: That portion of direct Variance: labour cost variance which is due to the difference between the standard labour hours specified for the activity achieved and the actual labour hours expended. = Std Rate x ( Std. Time for Actual Output Actual Time) Direct Labour Mix Variance : This variance arises if during a particular period, the grades of labour used in production are different from those budgeted. = Std. Rate x ( Revised Std. Time Actual Time )
13
9/23/2011
Overhead Variances
Certain Important terms related to Overhead Variances: Standard Overhead rate per unit = Budgeted Overheads Budgeted Output Standard Overhead rate per hr = Budgeted Overheads Budgeted Hours Standard hrs for Actual Output = Budgeted hrs x Actual Output Budgeted Output Standard Output = Budgeted Output x Actual Hrs Budgeted hrs Recovered Overheads = (Std rate per hr) x (Std hrs for actual output) Budgeted Overheads = (Std. Rate per unit) x (Budgeted Output) Standard Overheads = (Std. rate per unit) x (Std. Output for actual time) Actual Overheads = (Actual rate per unit) x (Actual output)
15
Fixed Overhead Cost Variance Fixed Overhead Volume Variance Fixed Overhead Capacity Variance
Overhead Cost Variance = Recovered Overheads Actual Overheads Variable Overhead Cost Variance: Variance: = Recovered Variable Overheads Actual Variable Overheads
16
9/23/2011
17
Sales Variance
Sales Variance With Reference to Turnover With Reference to Profit
With Reference to Turnover: Value Variance = Budgeted Sales Actual Sales Price Variance = Actual Qty Sold x ( Std. Price Actual price) = (Standard Sales Actual Sales) Volume Variance = Std. Price x ( Budgeted Qty Actual Qty ) = Budgeted Sales Standard Sales
18
9/23/2011
Mix Variance : Based On Quantity : Mix Variance = Std. Price x ( Revised Std. Qty Actual Qty.) = Revised Std. Sales Std. Sales Based on Value : Mix Variance = Revised Std. Sales Std. Sales where, Revised Std. Sales = Budgeted Ratio of Sales x Std. Sales where, Budgeted Ratio of Sales = Budgeted Sales of a Product Total Budgeted Sales Quantity Variance = Budgeted Sales Revised Std. Sales
19
20
10