Standard costing (A Level) flashcards

Topic 2.5: Standard costing

Ideal, attainable and basic standards

Ideal: perfect conditions, no waste or idle time. Attainable: allows normal waste and idle time; demanding but achievable. Basic: kept unchanged for a long period to show trends.

Standard 4 kg at 5 per unit. 500 units made using 2,100 kg costing 10,080. Material variances?

Actual price 4.80; SQ 2,000 kg. Price (5 − 4.80) × 2,100 = 420 F. Usage (2,000 − 2,100) × 5 = 500 A. Total 10,000 − 10,080 = 80 A.

Standard hours 900, actual hours 870, standard rate 20, actual rate 21. Labour variances?

Rate (20 − 21) × 870 = 870 A. Efficiency (900 − 870) × 20 = 600 F. Total 18,000 − 18,270 = 270 A.

Standard fixed overhead 9 per unit; output 2,400 units; actual fixed overhead 22,500. Total fixed overhead variance?

Absorbed 2,400 × 9 = 21,600. 21,600 − 22,500 = 900 A (under-absorbed).

Standard variable overhead 1.50 per unit; output 6,000; actual variable overhead 8,700. Variance?

6,000 × 1.50 = 9,000. 9,000 − 8,700 = 300 F.

Cheaper, lower-grade material is bought. Which variances can it create?

Material price F, material usage A and labour efficiency A. One manager's favourable variance can cause another's adverse one.

Management by exception

Managers investigate only significant variances, outside a set tolerance, favourable as well as adverse, and watch trends.

Where are actual material prices, quantities used and hours worked collected from?

Prices: purchase invoices. Quantities used: stores requisitions and inventory records. Hours: clock cards, time sheets and job cards.

Can a total variance of zero still need investigating?

Yes. Large favourable and adverse sub-variances can cancel, for example cheap material (price F) causing waste (usage A).

A price variance of 600 A arose on 3,000 kg bought at 4.20 per kg. Standard price?

600 ÷ 3,000 = 0.20 above standard, so the standard price is 4.20 − 0.20 = 4.00.