Standard Cost Method and solved problem
Standard Cost
Method
Sometimes
materials are charged in the factory at an estimated price which represents the
normal price. This price is also known as pre-determined price or budgeted
price or standard price or standard cost. The determination of a standard price
is difficult because prices are controlled by market conditions than by the
Board of Directors of the manufacturing company. The standard price is not
fixed for all time but it is kept under constant review and is always subject
to adjustments for regular increase or decrease in prices.
The standard
cost of a material may or may not always coincide with actual price paid. In
case the two prices differ, a standard price variance occurs.
Problem :
5,00 units of
Material-C 5 with a standard price of Rs. 250 are purchased at Rs. 258.
Calculate standard price variance and the unit cost difference.
Solution:
Quantity Units Unit cost Amount
Rs. Rs.
Actual 5,000 × 258 (Actual) 12,
90, 000
Actual 5,000 × 250 (Standard) 12, 50, 000
Standard Price
Variance 5,000 × 8 40, 000
Unit Cost
Difference 8
Sometimes a
factory can work out not only the standard cost of the material but also the
standard quantity of consumption of materials for a given job or process. Under
these circumstances, we may have to calculate not only the price variance but
also the quantity variance.
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