PPT - Standard Costs and Variance Analysis B Com Notes | EduRev

Cost Accounting

B Com : PPT - Standard Costs and Variance Analysis B Com Notes | EduRev

 Page 1


Standard Costs and Variance 
Analysis
Page 2


Standard Costs and Variance 
Analysis
Objectives
1. Explain how standard costs are developed.
2. Calculate and interpret variances for direct 
material.
3. Calculate and interpret variances for direct 
labor.
Page 3


Standard Costs and Variance 
Analysis
Objectives
1. Explain how standard costs are developed.
2. Calculate and interpret variances for direct 
material.
3. Calculate and interpret variances for direct 
labor.
Standard Costs
Standard cost refers to expected costs 
under anticipated conditions.
• Standard cost systems allow for 
comparison of standard versus actual 
costs.
• Differences are referred to as standard 
cost variances.
• Variances should be investigated if 
significant.
Standard Costing: Process of 
establishing the standard cost
Page 4


Standard Costs and Variance 
Analysis
Objectives
1. Explain how standard costs are developed.
2. Calculate and interpret variances for direct 
material.
3. Calculate and interpret variances for direct 
labor.
Standard Costs
Standard cost refers to expected costs 
under anticipated conditions.
• Standard cost systems allow for 
comparison of standard versus actual 
costs.
• Differences are referred to as standard 
cost variances.
• Variances should be investigated if 
significant.
Standard Costing: Process of 
establishing the standard cost
Development of Standard Costs
1. Standard costs are developed in a variety 
of ways:
a. Specified by formulas.
b. Developed from price lists provided by 
suppliers.
c. Determined by time studies conducted 
by industrial engineers.
d. Developed from analyses of past data.
Page 5


Standard Costs and Variance 
Analysis
Objectives
1. Explain how standard costs are developed.
2. Calculate and interpret variances for direct 
material.
3. Calculate and interpret variances for direct 
labor.
Standard Costs
Standard cost refers to expected costs 
under anticipated conditions.
• Standard cost systems allow for 
comparison of standard versus actual 
costs.
• Differences are referred to as standard 
cost variances.
• Variances should be investigated if 
significant.
Standard Costing: Process of 
establishing the standard cost
Development of Standard Costs
1. Standard costs are developed in a variety 
of ways:
a. Specified by formulas.
b. Developed from price lists provided by 
suppliers.
c. Determined by time studies conducted 
by industrial engineers.
d. Developed from analyses of past data.
Ideal Versus Attainable Standards
Two schools of thought:
1. Ideal standards (perfection standards): 
developed under the assumption that no 
obstacles to the production process will 
be encountered.
2. Attainable Standards: developed under 
the assumption that there will be 
occasional problems in the production 
process.
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