Activity Based Costing
Step 1: we will identify various activities going on in a organisation
Step 2: We will compute cost for each activities
Step 3: we will identify suitable cost driver for each activity
"Cost drivers are the factors which are responsible for change in activity cost."
Step 4: we shall compute activity rate or cost driver rate.
Total Activity cost
No. of units of cost driver
Step 5: With the help of cost driver we shall note allocate activity cost to cost object.
"Cost objects are the one who are responsible for bearing the cost of activity.” It may be a
product, department, division, etc.”
VARIANCES
Adverse Favourable
Bad for the company Goods for company
MATERIAL COST VARIANCE
Material cost, labour cost & o VOH cost, all 3 are variable cost i.e. product cost.
∴ Before computing variance for these 3 cost, we need to ensure that both std data as well as
actual data are for the same output i.e. actual Output
Example:
Standard 10 kg Revised std: 1000 kg Actual : 1000 kg
kg @ Amt kg @ Amt kg @ Amt
A 6 6 36 600 6 3600 800 8 6400
B 6 5 30 600 5 3000 500 4 2000
12 kg 1200 1300 8400
- 2 kg -200 - 300
10 kg 66 1000 6,600 1000 8400
1
, Material Cost Variance
[Std Total Mat cost - Actual Total Mat. Cost]
6600-8400 = 1800 A
Material Price Variance Material Usage Variance
[Std Price-Actual Price]x Actual [Std units - Act units] x Std. Price
Qty [600 - 800] × 6 = 1200 A
A [6-8] 800 = 1600 A [600 - 500] x 5 = 500F
B[5-4] 500 = 500 F 700A
1100 A
Material Mix Variance Material Yield Variance
[Std mix for Act. input - Actual mix for Act Input] x std Price
[650 - 800] 6 = 900 A
[650 - 500] 5 = 750 F 550A
1300 1300 150A
[1:1] [8:5]
→ Material Yield Variance :
→ Based on mixture
[Std mix in Std input - Std mix in Actual input] x std Price
A (600-650) X 6 = 300 A
B (600-650) X 5 = 250 A
550A
OR
→ Based on output
[Std output For actual input - Actual output for actual input] x Std avg cost per output
[1083.33-1000] x 6600
1000
1200 - 1000
1300 - ?
= 550 A
OR
Based on Input
[Std Input for Act output - Actual Input for actual output] x std Avg Cost per input
[1200-1300] X 6600 =550A
1200
2
Step 1: we will identify various activities going on in a organisation
Step 2: We will compute cost for each activities
Step 3: we will identify suitable cost driver for each activity
"Cost drivers are the factors which are responsible for change in activity cost."
Step 4: we shall compute activity rate or cost driver rate.
Total Activity cost
No. of units of cost driver
Step 5: With the help of cost driver we shall note allocate activity cost to cost object.
"Cost objects are the one who are responsible for bearing the cost of activity.” It may be a
product, department, division, etc.”
VARIANCES
Adverse Favourable
Bad for the company Goods for company
MATERIAL COST VARIANCE
Material cost, labour cost & o VOH cost, all 3 are variable cost i.e. product cost.
∴ Before computing variance for these 3 cost, we need to ensure that both std data as well as
actual data are for the same output i.e. actual Output
Example:
Standard 10 kg Revised std: 1000 kg Actual : 1000 kg
kg @ Amt kg @ Amt kg @ Amt
A 6 6 36 600 6 3600 800 8 6400
B 6 5 30 600 5 3000 500 4 2000
12 kg 1200 1300 8400
- 2 kg -200 - 300
10 kg 66 1000 6,600 1000 8400
1
, Material Cost Variance
[Std Total Mat cost - Actual Total Mat. Cost]
6600-8400 = 1800 A
Material Price Variance Material Usage Variance
[Std Price-Actual Price]x Actual [Std units - Act units] x Std. Price
Qty [600 - 800] × 6 = 1200 A
A [6-8] 800 = 1600 A [600 - 500] x 5 = 500F
B[5-4] 500 = 500 F 700A
1100 A
Material Mix Variance Material Yield Variance
[Std mix for Act. input - Actual mix for Act Input] x std Price
[650 - 800] 6 = 900 A
[650 - 500] 5 = 750 F 550A
1300 1300 150A
[1:1] [8:5]
→ Material Yield Variance :
→ Based on mixture
[Std mix in Std input - Std mix in Actual input] x std Price
A (600-650) X 6 = 300 A
B (600-650) X 5 = 250 A
550A
OR
→ Based on output
[Std output For actual input - Actual output for actual input] x Std avg cost per output
[1083.33-1000] x 6600
1000
1200 - 1000
1300 - ?
= 550 A
OR
Based on Input
[Std Input for Act output - Actual Input for actual output] x std Avg Cost per input
[1200-1300] X 6600 =550A
1200
2
