1. AFM 31130 Standard Costing & Variance Analysis Isuru Nadeesha ManawaduBy
Isuru Nadeesha Manawadu
B.Sc in Accounting Sp. (USJP), ACA,

2. Standard cost Standard cost card
Standard cost is a predetermined estimated unit cost used for stock valuation & control.
Standard cost card
Standard cost card shows full details of the standard cost of each product.

3. Standard Costing
Standard costing is a control technique which compares standard costs and revenues with actual results to obtain variances which are used to stimulate improved performance.

4. Standard costing involves:
• The setting of standards.
• Ascertaining actual results.
• Comparing standards and actual costs to determine the variances.
• Investigating the variances and taking appropriate action where necessary.

5. Types of Standards • Ideal Standards • Attainable standards
• Current Standards
• Basic Standards

8. Selling Price Variance
Sales Variance
Sales Volume Variance
DM Price Variance
DM Usage Variance
DM Total Variance
DL Rate Variance
Total Profit Variance
DL Total Variance
DL Efficiency Variance
Production Cost Variance
VPOH Expenditure Variance
VPOH Variance
VPOH Efficiency Variance
FPOH Variance
FPOH Expenditure Variance
FPOH Volume Variance
Non Production Cost Variance
Marketing Cost Variance
Administration Cost Variance

13. 1. Direct Material Variances
1.1 Direct Material Price Variance:
Actual Quantity x Actual Price   -   Actual Quantity x Standard Price
     Actual Cost      -   Standard Cost of Actual Quantity
1.2 Direct Material Usage Variance:
Actual Quantity x Standard Price   -   Standard Quantity x Standard Price
Standard Cost of Actual Quantity   -   Standard Cost of Standard Quantity or
(Actual Quantity - Standard Quantity) x Standard Price

14. Question 01
Araliya PLC manufactured 10,000 bags of cement during the month of January. Following details on raw materials purchased and consumed during the period given bellow:
Material Quantity Used SU per bag Actual Price Standard Price
Limestone tons KG Rs. 75/ton Rs.70/ton
Sand tons KG Rs. 10/ton Rs.14/ton
Calculate;
Material price variance
Material Usage Variance
Material Total Variance
SU: Standard Usage

15. 2. Direct Labour Variances
2.1 Direct Labor Rate Variance:
  Actual Quantity x Actual Rate   -   Actual Quantity x Standard Rate
      Actual Cost      -   Standard Cost of Actual Hours
2.2 Direct Labor Efficiency Variance:
Actual Hours x Standard Rate   -   Standard Hours x Standard Rate
Standard Cost of Actual Hours    -     Standard Cost

16. Question 02
Araliya PLC is a company which produces denims and it has manufactured and sold 10,000 denims during a period. Information relating to the direct labor cost and production time per unit is as follows:
AH Per Unit SH Per Unit AR Per Hour SR Per Hour
Direct Labor Rs Rs. 10
Calculate;
Direct Labour rate variance
Direct Labour Efficiency Variance
Total Direct Labour Variance
AH – Actual Hours, SH – Standard Hours, AR – Actual Hours, SR – Standard Rate

17. 3. Variable Cost Variances
3.1 Variable Overhead Expenditure Variance:  
Actual Manufacturing Variable Overheads Expenditure
Less
Actual hours   x   Standard Variable Overhead Rate per hour
3.2 Variable Overhead Efficiency Variance:
Standard hours   x   Standard Variable Overhead Rate per hour

18. Question 03
Araliya Sports LTD is a small manufacturing company specializing in the production of cricket bats. Araliya Sports LTD currently manufactures 2 types of bats:
Araliya Plus - a hand-crafted bat designed for professional use.
Araliya Gold - a machine-manufactured cheaper bat designed for casual cricket.
Following is a break-up of the standard variable manufacturing overhead costs:
Araliya Plus Araliya Gold Number of Hours direct labor hours machine hour Overheads: Indirect Labor Rs Polish Rs Rs Sand paper Rs Glue Rs Rs Machine lubricants Rs Electricity Rs Rs. 10
Total Rs Rs (Rs.10 per direct labor hour) (Rs.12 per machine hour)
Following information relates to the actual data from last month:
Variable Manufacturing Overheads Rs.175,000
Direct Labor Hours10,000
Machine Hours 5,000
Production (units) – Araliya Plus 4,500
Production (units) - Araliya Gold 5,200
Calculate; Variable overhead expenditure variance and efficiency variance.

19. Fixed Overhead Variances
4.1 Fixed Overhead Total Variance (FOTV):  
FOTV= Actual Fixed Overheads - Absorbed Fixed Overheads
4.2 Fixed Overhead Expenditure Variance:
Actual Fixed Overheads - Budgeted Fixed Overheads
4.3 Fixed Overhead Volume Variance:
Absorbed Fixed overheads - Budgeted Fixed Overheads
Actual Output x FOAR* - Budgeted Output x FOAR*
* Fixed Overhead Absorption Rate per unit of output

20. Question 04
Araliya PLC is a manufacturing company specializing in the production of automobiles. Information from its last budget period is as follows:
Actual Production 275,000 units
Budgeted Production 250,000 units
Standard Fixed Overhead Absorption Rate Rs. 2,000 per unit.
Actual fixed overhead Rs. 600 Mn
Calculate
Fixed overhead total variance
Fixed overhead expenditure variance
fixed overhead volume variance

21. 1. Sales Variances 1.1 Sales Price Variance: 
Actual Price x Actual Units Sold   -   Standard Price x Actual Units Sold
Actual Sales Revenue    -    Standard Revenue of Actual Units Sold or
(Actual Price - Standard Price)   x   Actual Units Sold
1.2 Sales Volume Variance:
Sales Volume Variance (where absorption costing is used):
(Actual Unit Sold - Budgeted Unit Sales)   x   Standard Profit Per Unit
Sales Volume Variance (where marginal costing is used):
(Actual Unit Sold - Budgeted Unit Sales)   x   Standard Contribution Per Unit

22. Question 05
Araliya PLC is a fertilizer producer which specializes in the manufacture of NHK-II (a chemical fertilizer).
Following information relates to the sale of fertilizer by Araliya PLC during the period:
Material Quantity Actual Price Standard Price
NHK-II tons Rs. 380/ton Rs. 400/ton
Budgeted quantity of sales is 210 tons and standard variable cost per unit is Rs. 250.
Calculate;
Sales price variance
Sales volume variance

23. Limitations of Standard Costing & Variance Analysis
Non Standardized Production
Service Organizations
Assigning Responsibilities
Reporting Delay
Behavioral Issues