Swayam Siddhi College of Mgt & Research

SSCMR Presentor : Prof. Rahul Shah

STANDARD
COSTING
 Intended Learning
Outcomes
• At the end of the chapter, you will able to

• 1.1 Understand the concept of Standard Cost and Standard

Costing
• 1.2 Understand the objectives and utility of Standard
Costing
• 1.3 Compute and analyze various variances.
Introduction
• Standard Cost is defined as, ‘a pre-determined cost which is
calculated based on statistics & management's experience.

• It may be used as a basis for price fixation and for cost control
through variance analysis.

• Standard Costing is defined as, ‘preparation and use of standard

costs, their comparison with actual costs and analysis of
variances into their causes and points of incidences.
Setting of Standards
• Standard setting should be done extremely carefully to ensure
that the standards are realistic and neither too high nor too low.

• If very high standards are set, it will be impossible to attain the

same and there will be always an adverse variance. This will
result in lowering the morale of the employees.

• On the other hand, if standards are set too low, they will be
attained very easily and the favorable variances will create
complacency amongst the employees.
The following aspects should be taken into
consideration before setting the standards.
• Expected Standard -These standards are formulated after making
allowance for the cost of normal spoilage, cost of idle time due to
machine breakdowns, and the cost of other events, which are
unavoidable in normal efficient operations
• Historical Standard

• Length of the period of use-it will have to be decided whether the

standards should be revised too frequently or after a long time.

• Attainment Level – On the production, level of efficiency,

availability of skilled manpower, sales potential
Computation of
Variances
• Variance is the difference between the standard cost and the
actual cost.
• Material Variances- the main objective is to find out the
difference between the standard cost of material used for actual
production and actual cost of material used.

• Material Cost Variance:

=Standard Cost of Material Consumed for Actual Production – Actual
Cost i.e (Standard Quantity x Standard Price) – ( Actual Quantity x Actual
Price)

• If the actual cost of material consumed is less than the standard

cost of material consumed, the variance is ‘favorable’,
otherwise it is adverse
• Material Price Variance
= Actual Quantity [Standard Price – Actual Price]

• Material Quantity [Usage] Variance:

= Standard Price [Standard Quantity – Actual
Quantity]

• Material Cost Variance :

= Material Price Variance + Material Quantity Variance
Calculate Material Variances from the following details

Q:01
• Standard quantity of materials for producing 1 unit of
finished product ‘P’ is 5 kg. The standard price is Rs.6 per
kg. During a particular period, 500 units of ‘P’ were
produced.
• Actual material consumed was 2700 kg at a cost of Rs.16,
200.
Labour
Variances
• Labour Variances: labour variances arise due to the
difference between the standard labour cost for actual
production and the actual labour cost

• Labour Cost Variance = Standard Labour Cost for

Actual Production – Actual Labour Cost

• Labour Rate Variance: Actual Hours Paid [Standard Rate –

Actual Rate]

• Labour Efficiency Variance = Standard Rate

[Standard Hours for Actual Output – Actual Hours worked]
SQ = 210000/70X100 =300000
INPUT OUTPUT
100 70
? 210000 SP = 1 AQ 280000
AP 252000/280000 =0.9
• Standard hours for manufacturing two products, M and N are 15
hours per unit and 20 hours per unit respectively. Both products
require identical kind of labour and the standard wage rate per
hour is Rs.5. In a particular year, 10, 000 units of M and 15, 000
units of N were produced.

• The total labour hours worked were 4, 50, 000 and the actual
wage bill came to Rs.23, 00,000. This includes 12, 000 hours
paid for @ Rs.7 per hour and 9400 hours paid for @ Rs.7.50 per
hour, the balance having been paid at Rs.5 per hour.

• You are required to calculate labour variances.

Thank
You…