Standard Costing
The purpose of standard costing Standard Costing is a control tool for management. Standard Costs are collected on a standard cost card. They may be based on Absorption Costing or Marginal Costing.
Advantages and Disadvantages of Standard Costing
Types ofIdeal standard What would be expected under perfect operating conditions
Attainable What would be expected under normal operating conditions
Types of Standards
Basic A standard left unchanged from period to period
Current A standard adjusted for specific issues relating to the current period
Sales Volume Variance Marginal costing
Budgeted sales
Absorption costing
Budgeted sales
Standard profit per unit
Standard contribution per unit Actual sales
Actual sales
Sales Price Variance Budgeted selling price
Actual quantity sold Actual selling price
Direct Materials Variances
Direct Labour Variances
Variable Overhead variances
Fixed Overhead Variances Marginal Costing
Fixed Production Overheads Total Variance
Expenditure Variance
Fixed Overhead Variances Absorption Costing
Fixed Production Overheads Total Variance
Expenditure Variance
Volume Variance Efficiency Variance
Capacity Variance
Fixed Overhead Variances Absorption Costing
Under- or over-absorption of overheads
Budgeted Fixed Overhead – Actual Fixed Overhead
(Actual Production in standard hours × OAR) – Budgeted FOH
(Actual hours taken – standard hours for output achieved) × OAR
(Actual Hours worked – budgeted hours worked) × OAR
Causes of Variances
Causes of Variances
Performance measurement techniques
Financial performance – profitability
Financial performance - liquidity
Financial performance - risk
Non Financial performance Quality • Wastage • Customer satisfaction • Growth in sales • Product improvements • Job satisfaction
Balanced scorecard
Benchmarking Internal
Strategic
Benchmarking
Functional
Competitive
Performance measurement in specific situations
Divisional performance
Manufacturing industries Contract costing
Job costing
Batch costing
Process costing
Service sector Financial
Quality
Revenue per product group
Staff costs as a % of revenue
Space costs as a % of revenue
Market share
Current ratio
Customer surveys
Management inspections
Fault monitoring
Quality control
Non-profit and public sector Economy Efficiency
Effectiveness
Value for Money
Spreadsheets
Uses of spreadsheets Budgets
Reports
Uses
What-if
Variances
Presenting information
Report Format • • • • •
Title Introduction Analysis Conclusion Appendices
Simple bar chart
Component bar chart
Compound (multi) bar chart
Line chart
Pie chart
