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Chapter 4

Chapter 4 discusses standard costing and variance analysis, defining standard costs as predetermined amounts used for planning labor, materials, and overhead. It highlights the collaboration of various roles in setting these standards and distinguishes between standards and budgets. The chapter also explains how managers utilize standard costs for planning, performance measurement, variance analysis, and communication within repetitive production environments.

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14 views16 pages

Chapter 4

Chapter 4 discusses standard costing and variance analysis, defining standard costs as predetermined amounts used for planning labor, materials, and overhead. It highlights the collaboration of various roles in setting these standards and distinguishes between standards and budgets. The chapter also explains how managers utilize standard costs for planning, performance measurement, variance analysis, and communication within repetitive production environments.

Uploaded by

samantha.anantrao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

CHAPTER 4

STANDARD COSTING AND


VARIANCE ANALYSIS
Standard Costing

Define standard costs, and explain how standard


costs are developed, and compute a standard unit
cost.
Standard Costs

Based on carefully
predetermined amounts.

Standard Used for planning labor, material


Costs are and overhead requirements.

The expected level


of performance.

Benchmarks for
measuring performance.
Setting Standard Costs

Accountants, engineers, personnel administrators, and


production managers combine efforts to set standards
based on experience and expectations.
Standards vs. Budgets

A standard is the expected


cost for one unit.
Are standards the same as A budget is the expected cost
budgets? for all units.
Standard Costing
Standard Costing

• The three components of standard costing:


– Standard costs, which provide a standard, or
predetermined, performance level
– A measure of actual performance
– A measure of the variance between standard and actual
performance
• Applicability
• Best suited to companies with repetitive production –
Process industries not Jobbing industries.
• Ex. Steel, Cement, Sugar, Fertilisers etc..
Standard Costing

• How managers use standard costs for


planning and control in the management
process:
– Planning—For budget development; product
costing, pricing, and distribution
– Performing—For measurement of expenditures
and control of costs as they occur
Standard Costing

• How managers use standard costs for


planning and control in the management
process: (cont.)
– Evaluating—For variance analysis
– Communicating—For variance reports
Standard Costing
Standard Costing
Standard Costing
Standard Costing
Standard Costing
PRODUCT STANDARD UNIT COST

Direct Direct Direct Direct Standard Standard


Materials Materials Labor Labor Variable Fixed
Price Quantity Rate Time Overhea Overhead
Standard Standard Standard Standard d Rate Rate

Standard Direct Standard Direct Standard


Materials Cost Labor Lost Overhead Cost
©2011 Cengage Learning All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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