Cost Variance Analysis
Cost Variance
Analysis
Presented by :
Edmund C. Cabrera
MBA Student
Universidad de Manila
Definitions
STANDARD
COSTS
–
are predetermined or target unit costs of production which should be attained under efficient conditions.
It is the amount and costs of direct material, direct labor, and factory overhead required to produce one unit of finished product.
STANDARD COST SYSTEM – is an accounting system which uses standard costs rather than actual costs to account for units as they flow through the manufacturing process. Objectives of Standard Cost
1. To help a business operate
System
2.
more effectively and more efficiently It helps accomplish organization goals by obtaining optimum output from the inputs available.
Uses of Standard Costing
1.
2.
3.
4.
5.
Inventory
Planning and controlling costs
Measurement of performance
Budget preparation
Motivating employees
Types of Standards
1.
2.
3.
Basic (Fixed) Cost Standards – are standards that are unchanged year after year.
Perfection (Ideal or
Theoretical) Cost Standards – are absolute minimum costs attainable under operating conditions. Current Attainable Cost
Standards – standard that can be attained under efficient operating conditions. It is useful for employee motivation, product costing and budgeting.
Setting Direct Materials
Standards
Standard Quantity
-
-
Industrial engineers develop specification for the kinds and quantities of materials used in producing the goods budgeted. Operation schedules list the materials and quantities required for the expected volume of production.
Standard Price
- Information from the operation schedule and bills of material established jointly by the engineering department, the manufacturing supervisor and the accountant becomes the basis for the material price standard.
Variance Analysis
- Analysis of variances reveals that causes of deviations between standard and actual costs.
This feedback aids in planning future goals, controlling costs and evaluating
Analysis
Presented by :
Edmund C. Cabrera
MBA Student
Universidad de Manila
Definitions
STANDARD
COSTS
–
are predetermined or target unit costs of production which should be attained under efficient conditions.
It is the amount and costs of direct material, direct labor, and factory overhead required to produce one unit of finished product.
STANDARD COST SYSTEM – is an accounting system which uses standard costs rather than actual costs to account for units as they flow through the manufacturing process. Objectives of Standard Cost
1. To help a business operate
System
2.
more effectively and more efficiently It helps accomplish organization goals by obtaining optimum output from the inputs available.
Uses of Standard Costing
1.
2.
3.
4.
5.
Inventory
Planning and controlling costs
Measurement of performance
Budget preparation
Motivating employees
Types of Standards
1.
2.
3.
Basic (Fixed) Cost Standards – are standards that are unchanged year after year.
Perfection (Ideal or
Theoretical) Cost Standards – are absolute minimum costs attainable under operating conditions. Current Attainable Cost
Standards – standard that can be attained under efficient operating conditions. It is useful for employee motivation, product costing and budgeting.
Setting Direct Materials
Standards
Standard Quantity
-
-
Industrial engineers develop specification for the kinds and quantities of materials used in producing the goods budgeted. Operation schedules list the materials and quantities required for the expected volume of production.
Standard Price
- Information from the operation schedule and bills of material established jointly by the engineering department, the manufacturing supervisor and the accountant becomes the basis for the material price standard.
Variance Analysis
- Analysis of variances reveals that causes of deviations between standard and actual costs.
This feedback aids in planning future goals, controlling costs and evaluating