UNIT 5 –

STANDARD COSTING &

VARIANCE ANALYSIS
PROF DR INDU MAZUMDAR
Indu.mazumdar@gmail.com
• Introduction
• Meaning and limitations of Standard Costing,
• Standard costing as a management Tool, Historical costing,
• Estimated Costing and Standard Costing, Standard Cost and Budgeted
Cost,
• Determination of Standard Cost for Direct Material, Direct Labour
Cost.
• Variance Analysis: Direct Material Variance – Material Cost
Variance, Material Rate Variance, Material Quantity Variance,
Material Mix Variance, and Material Yield Variance,
• Direct labour Variance – Labour Cost Variance, Labour Rate Variance,
Labour efficiency Variance, Labour Mix Variance, Idle Time Variance
and Labour Yield Variance.
INTRODUCTION
• A standard cost variance is the difference between a standard cost
and an actual cost. This variance is used to monitor the costs incurred
by a business, with management taking action when a material
negative variance is incurred. ... The standard cost of labor is based on
a time and mot
• There are three main categories of standard costs, basic standard
costs, ideal standard costs and currently attainable standard costs.
• Standard costing is a technique which uses standards for costs and
revenues for the purpose of control through variance analysis.
Standard is a predetermined measurable quantity set in defined
conditions against which actual performance can be compared,
usually for an element of work, operation or activity.
TYPES OF VARIANCE
• Controllable and un-controllable variances
• Controllable variances are those cost variances that can be controlled
under normal operating conditions.
• Un-controllable variances are those variances that occurs due to
conditions which are beyond our control.
• Favorable and Adverse variances
• Favourable variance are those which are profitable for the company
• Adverse variances are those which causes loss to the company
COMPUTATION OF VARIANCE
• Material Cost Variance-Difference between standard cost of
Material and Actual Cost of Material.
It occurs mainly because of either difference in material price from
standard price or difference in material consumption from standard
consumption.
Problem 1
• Material Price Variance-Is the
difference in price of actual
material purchased from
standard material price.
Material Usage Variance
• It measures variances in material cost due to usage/consumption of
materials and is computed as below:
Material Usage Variance is further divided into two parts:

Material Mix Variance:Variance in any material consumption that may arise due
to difference in proportion n actually used from standard mix /proportion . It
occurs when two or more inputs are used to produce a product.

Material Yield Variance: It occurs when there is a variation in marerial

consumption which arises due to yield or productivity of the inputs. It may arise
due to sub-standard quality of materials , inefficiency of workers or wrong
processing.
Problem 2
Problem 3
Problem no 4
Material Yield Variance
Problem No 6
LABOUR COST VARIANCE
LABOUR RATE VARIANCE
LABOUR EFFICIENCY VARIANCE
LABOUR MIX VARIANCE
LABOUR YIELD VARIANCE
IDLE TIME VARIANCE
 PROBLEM NO:10
PROBLEM NO: 9
Problem No 11