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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
