Standard Costing from Financial Books
After a huge discussion on financial chapter we have come to “Standard Costing” chapter to discuss about it. About it management says that it is the standard costing is an important tool to planning and cost control.
Objectives of Standard Costing:
Meaning of Standard Costing
Nature of Variance Analysis
Calculate Variances
According to the ICMA, London Standard Cost is, “the pre-determined cost based on technical estimate for materials, labour and overhead for a selected period of time and for a prescribed set of working conditions.”
You should know that Standard Cost is different from “Estimated Cost” and it express what should be the cost, in advance of actual production.
Along with we should know about Standard Costing also. The definitions of Standard Costing also look from ICMA, London, “the preparation of standard costs and applying them to measure the variations from standard costs and analyzing the causes of variations with a view to maintain maximum efficiency in production.”
Standard Costs involves in:
a. Ascertainment of standard costs for each element costs – material, labour, overhead
b. Use of standard costs as a guide and measure of actual costs
c. Measurement of actual costs
d. Comparison of actual costs with the standard costs
e. Measurement and analysis of deviations of actual costs from standard costs
After having understood about the standard costs we should proceed with Variance Analysis. According to the MBA book of SMU variance is, “the difference between a standard cost and the actual cost incurred during a period.
In the variance analysis mainly two elements involved which are:
Measurement of individual variances and
Identification of causes of each variance
We can illustrate here some formula about variance:
Material usage variance = (Standard Quantity – Actual Quantity) x Standard Price
[MUV = (SQ –AQ) x SP]
Computing mix variance:
Material mix variance = [standard cost of standard mix] – [standard cost of actual mix]
Or
[Standard mix – actual mix] x standard rate per unit
Or
[Revised standard mix of actual input – actual mix] x Standard price.
I think now all the things are clear about the standard costs and variance from the financial book. I have already explained the entire chapter before much clearly with some example. I think to publish here about some new chapter of finance and loans also.
