STANDARD COSTING

• THE TECHNIQUE OF STANDARD COSTING HELPS THE MANAGEMENT

IN DETERMINING IN ADVANCE THE STANDARD COST OR ESTIMATED
COST.

• IN STANDARD COSTING, FIRST THE STANDARD COSTS ARE SET UP FOR

EACH PRODUCT, THEN THE ACTUAL COSTS ARE COMPARED WITH
SUCH STANDARD COSTS AND FINALLY THE DIFFERENCE (VARIANCE)
BETWEEN STANDARD AND THE ACTUAL COST IS ANALYSED. THIS
HELPS IN CONTROLLING THE COST.
MATERIAL VARIANCES

Example:

STANDARD ACTUAL
1 unit 1 unit
Usage (Qty) 2 kg material 3 kg material (Adverse) (A)
Price (price) Rs.5 per kg Rs.4 per kg (Favourable) (F)
Cost(qty*price) Rs. 10 Rs. 12 (Adverse) (A)
FORMULAE
1. Material Cost Variance (MCV)
MCV= Standard material cost – Actual Material Cost
MCV= (SQ*SP) – ( AQ*AP)
Where- SQ=Std Qty, SP=Std price, AQ=Actual Qty, AP=Actual Price

2. Material Usage Variance (MUV)

MUV= SP (SQ-AQ)

3. Material Price Variance (MPV)

MPV= AQ(SP-AP)

It will also be observed that

MCV=MUV+MPV (F) (A)
 Practice:
 MCV=(SQ*SP)-(AQ*AP)
=(2*5)-(3*4)
=10-12
=2 (A)
MUV= SP (SQ-AQ)
= 5 (2-3)
=5(-1)
=5 (A)
MPV= AQ(SP-AP)
= 3 (5-4)
=3 (F)
We observe that,
MUV+MPV= MCV
-5 + 3 = 2 (A)
 LABOUR VARIANCES
FORMULAE:
1. Labour Cost Variance (LCV)
LCV= (SH*SR) – (AH*AR)
Where: SH=Standard Hours, SR=Standard rate, AH=Actual Hours, AR= Actual Rate

2. Labour Efficiency Variance (LEV)

LEV= SR (SH-AH)

3. Labour Rate Variance (LRV)

LRV= AH (SR-AR)