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Standard Costing and Variance Analysis (Standard Costs (Uses (Predict…
Standard Costing and Variance Analysis
Standard Costs
Predetermined costs - occur under efficient operations
Useful with common/repetitive operations
Used to calculate budgeted profits
Based on historical information or engineering method
Types of Standard Costs
Direct materials
Direct labour
Overheads
Uses
Predict future costs
Challenging target for motivation
Setting budgets
Identifying deviations
Criticisms of Standard Costing
Less relevant due to more firms wih fixed overhead dominated cost structures
Inconsistent with modern management techniques of continuous improvement
Emphasises importance of direct labour
Time consuming to produce reports - can be too late
Budget Variance Analysis
Flexed budget to match actual quantity
Production Variances
Wages, variable overhead, fixed overhead variances
Materials Mix and Yield
Sales Variances
Sales Mix
Sales Quantity
Price and Efficiency
External Factors
Market Share and Size Variance
Variances
Causes
Out of date standard costs
Internal inefficiencies/poor performance
Uncontrollable (market) factors
Investigation of Variances
Materiality
Identified causes
Relationship with other variances
Costs and benefits of rectification
Experience and judgement of management
Time after event