Standard Costing - studyonline.iestudyonline.ie/wp-content/uploads/2016/08/Topic-9-Standard-Costing... · Fixed Overhead Variances Under- or over-absorption of overheads ... •Conclusion

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 of standard

Types of Standards

Ideal

What would be expected under perfect operating conditions

Basic

A standard left

unchanged from

period to period

Current

A standard adjusted for specific issues relating to the current

period

Attainable

What would be

expected under

normal operating

conditions

Sales Volume Variance Marginal costing

Budgeted sales

Actual sales

Standard contribution

per unit

Absorption costing

Budgeted sales

Actual sales

Standard profit

per unit

Sales Price Variance Budgeted

selling price

Actual selling price

Actual quantity

sold

Direct Materials Variances

Direct Labour Variances

Variable Overhead variances

Fixed Overhead Variances

Fixed Production Overheads Total Variance

Marginal Costing

Expenditure

Variance

Fixed Overhead Variances

Fixed Production Overheads Total Variance

Absorption Costing

Expenditure

Variance Volume

Variance

Efficiency

Variance

Capacity

Variance

Fixed Overhead Variances

Under- or over-absorption of overheads

Absorption Costing

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

Benchmarking

Internal

Competitive

Functional

Strategic

Performance measurement

in specific situations

Divisional performance

Manufacturing industries

Contract costing

Job costing

Batch costing

Process costing

Service sector Financial

Revenue per product group

Staff costs as a % of revenue

Space costs as a % of

revenue Market share

Current ratio

Quality

Customer surveys

Management inspections

Fault monitoring

Quality control

Non-profit and public sector

Value for Money

Effectiveness

Efficiency

Economy

Spreadsheets

Uses of spreadsheets

Uses

Budgets

Variances

What-if

Reports

Presenting information

Report Format

• Title

• Introduction

• Analysis

• Conclusion

• Appendices

Simple bar chart

Component bar chart

Compound (multi) bar chart

Line chart

Pie chart