Lecture 11
Standard Costing system: Represent the “pre-set costs” per unit
Budgeting cost: reflect overall cost
KEY ELEMENTS
1) Procedures
Procedures for setting up and updating standards
- Ideal standard
- Realistic standard
2) A recording system
For gathering
-standard and actual cost/revenue
-Calculating difference (variances)
3) Determination unit cost
a. Raw material
b. Labour
c. Variable overheads
d. Fixed overheads
4) Time
5) Investigation
a. What to trigger investigate
b. How to investigate
KEY FUNCTION
1.
2.
3.
4.
5.
6.
Cost estimation
Creating guideline for measuring performance
Provide feedback
Facilitate future planning
Improve the understanding of business
Enabling management by exception
Causes of variance
1)
2)
3)
4)
5)
Inefficiency in operation
Interdependence of departments
Random change/ fluctuation in market
Poor communication
Incorrect standards
Flexible budget: Revised master budget (change in sales volume)
Profit variance
Separated in two to show differences between cost and sales
-Total cost variance
-Total sales variance
Calculating Variance
Sales volume variance = (budget Q – actual Q) x standard contribution / unit
-
Difference in total profit (between flexible budget and master budget)
Price variance = (actual P – standard P) x actual Q
-
Change in total cost is due to a change in the price of an input
Quantity Variance = (actual Q – standard Q) x standard P
-
change in total cost due to quantity of input used