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Standard Costing Summary
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- Stellenbosch University (SUN)
A summary of manacc378, Standard Costing
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Chapter 17 + 18- Standard costing:50 marks in test 3
Abbreviations used in this presentation and all transparencies:
Std = Standard
DCM = Direct costing method
ACM = Absorption costing method
F = Favourable
A = Adverse
R/M = Raw material
WIP = Work-in-progress
H = Hour
U = Unit
Man Acc 278 & Man Acc 378:
Man Acc 278 – Variance calculation, reconciliation and investigation of variances
(reasons for variances)
o Apply to scenario
(See revision questions in handout: Class example and questions 1-4)
Man Acc 378 – General ledger entries, analysis of raw material usage variance and
disposition of variances.
Standard costing process:
1. Set standards (per unit = usage x price)
2. Set budgets based on standards (activity level)
3. Measure actual results
4. Calculate variances (reconcile actual result with budget)
5. Identify material variances
6. Investigate variances
7. Take corrective actions
Class example 1 – calculation of variances:
Self-study (steps in completing the question)
PLEASE SEE THE EXPLANATORY HANDOUT CONTAING THE SOLUTION TO CLASS
EXAMPLE 1.
1. Calculate the Standard cost per cost element (usage x price )
2. Calculate variances
3. Reconcile budgeted profit with actual profit
Calculation of variances:
Static, Flexible and Actual
, Variable costs’ Variance calculations:
All usage and efficiency variances expressed in terms of standard price / tariff / rate.
All price / tariff / spending variances expressed in terms actual quantities
Reconciliation:
Budgeted profit - 540 units 530 units 321 840
Sales volume variance ( 10 units x R596 std. gross profit p/u) -5 960 A
Profit according to flexible budget (R321 x 530) 315 880
Sales price variance 26 500 F
Material usage variance 595 F
Material price variance -8 569 A
Labour efficiency variance 240 F
Labour tariff variance 10 276 F
Variable overhead rate variance -2 569 A
Variable overhead efficiency variance 90 F
Fixed overhead expenditure variance -8 856 A
Fixed overhead volume capacity variance -10 000 A
Fixed overheads volume efficiency variance 300 F
Actual profit 323 887
General ledger entries – actual stock quantities carried at standard cost (Look at page 9
of the hand-out and page 4 of the transparency):
Tips to remember:
1. Stock = R/M; WIP and Finished goods.
2. Actual opening and closing stock valued at standard costs.
3. Purchases or payments at actual costs
4. Issues/transfers to WIP – actual quantities x Std.price/tariff/rate
5. Therefore all price/tariff/spending variances in control account (fixed overheads =
spending + capacity) and
6. All usage/efficiency variances in WIP account.
[All of the above refers to revision from 278. Do class example 1, Q 1, 2 + 4 as revision]
[NB!! Do class example 2 and Q 5]
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