standar costing

Standard Costing : 

Standard Costing Material Variances Nauman Nazir Roll No. 253 Stage III

Standard cost: 

Standard cost A standard cost for a product or service is a predetermined (planned) unit cost set under specified working conditions.

Standard cost(Continued): 

Standard cost systems allow for comparison of standard costs versus actual costs. Differences are referred to as standard cost variances. (which may be favorable or Adverse) Standard cost (Continued)

Types of Standards: 

Types of Standards Ideal Standards Attainable Standards

Types of Standards(Continued): 

Ideal Standards Can only be attained under the best circumstances. No allowance for machine breakdowns or work interruptions Attainable Standards Tight but attainable standards. Allows for machine downtime and employee rest periods. Types of Standards (Continued)

Variances : 

Variances Material Variances Labor Variances FOH Variances

Material Variances: 

Material Variances Material Price Variance Material Quantity Variance (usage)

Material Price Variance : 

Material Price Variance Material Price Variance: (AP – SP) x AQ p AP = Actual price per unit of material. SP = Standard price per unit of direct material. AQ p = Actual quantity of material purchased. AP > SP = Unfavorable. AP < SP = Favorable.

Material Price Variance : 

Journal Entry (Recorded at Time of Purchase) Raw Materials (AQ x SP) XXX Materials Price Variance [(AP-SP)AQ] XXX Accounts Payable (AQ x AP) XXX Material Price Variance

Material Quantity Variance: 

Material Quantity Variance Material Quantity Variance: (AQ u – SQ) x SP AQ u = Actual quantity of material used. SQ = Standard quantity of material allowed. SP = Standard price of material. AQ > SQ = Unfavorable. AQ < SQ = Favorable.

Material Quantity Variance: 

Journal Entry (Recorded when materials are put into production) Work in Process (SQ x SP) XXX Materials Quantity Variance [(AQ-SQ)SP] XXX Raw Materials (AQ x SP) XXX Material Quantity Variance

Question: 

Question The standard price of material is $ 3.65 per liter. During November 2000 liters were purchased at $ 3.60 per liter. The quantity of material issued during the month was 1775 liters and the quantity allowed for November production was 1825 liters. Required: Material price variance At the time of, purchase and issue Material Quantity variance

Material Price Variance : 

Material Price Variance: At the time of Purchase (AP – SP) x AQ p (3.6 – 3.65) x 2000 (.05) x 2000 =100 Favorable Material Price Variance

Material Price Variance : 

Material Price Variance: At the time of Issue (AP – SP) x AQ I (3.6 – 3.65) x 1775 (.05) x 1775 =88.75 Favorable Material Price Variance

Material Price Variance : 

Journal Entry (Recorded at Time of Purchase) Raw Materials (2000 x 3.65) 7300 Accounts Payable (2000 x 3.60) 7200 Materials Price Variance [(3.6-3.65)2000] 100 Material Price Variance

Material Quantity Variance: 

Material Quantity Variance Material Quantity Variance: (AQ u – SQ) x SP (1775 – 1825) x 3.65 (50) x 3.65 = 182.5 Favorable

Material Quantity Variance: 

Journal Entry (Recorded when material is put into production) Work in Process (1825 x 3.65) 6661.25 Raw Material (1775 x 3.65) 6478.75 Material Quantity Variance [(1775-1825)3.65] 182.50 Material Quantity Variance