Question

For this discussion I'd like you to think about when you might have been able to prepare and analyze variances in the past. While you probably haven't had experience developing standards for materials and labor and comparing with actual to compute variances, you have all encountered situations where you had to spend more or less than you expected (we will use this as standard) or where efficiencies and usage was more or less than planned. What are some of your experiences and what do you think your variances would have calculated to be had you used standard costing and variance analysis for such situations? How would you have computed the variance? Please equate an equivalent example for all four of the following: materials price variance, materials quantity (usage) variance, labor rate variance, and labor efficiency variance.

Answer 1

Answer:-

Standard costing - actually standard cost is the pre- determined operation cost calculated from Management's standards of efficient operation and the relevant necessary expenditure.

Standard cost is the planned unit cost of the product, component or service produceed in a period.It reflect (1.) quantity of material and labour expected to be used. 2. prices expected to be paid for materials and labour during the coming year and 3. Fctory expences applicable to production based on good performance and practical capacity of the factory

.Basic standard are set on long term basis and are seldom revised. these costs relat to a base year , which is chosen for comparison purpose, like price Indices used by satisticians.

current standard should also laid down if basic standard are used. when basic standard are used , variances are calculated and analysed in the following manner-

step1- express the actual cost as percetage of the basic cost

2.express the current cost as a percentage of the basic cost

3 compare the two percentage to find out the extent of deviation from th ecurrent standard

4. compare the above percentage with those of the privious periods to estabish the trend of actual and current standard from the basic cost.

COMPUTATION OF VARIANCE

1. variance Analysis - variance analysis is the analysis of the variance into its component parts and the explantion of vaiances.

2. variance = expectation less actual

3. cost variance = expected \ standard cost less actual cost

material price variances = actual quantity standard price less actual quantity actual price.

material usege variance= standard quantity standard price less actual quantity standard price

labour rate variance = actual hour * standard rate less actual hour * actual rate

labour efficiency variance = standard hour * standard rate less actual hour * standard rate.