Fma10
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The document discusses standard costing and variance analysis. It provides examples of calculating variances for labor costs, overhead costs, and flexible budgeting at different activity levels. Specifically: 1) Standard costing involves preparing standard costs and comparing them to actual costs to analyze variances and their causes. 2) Variances measure the difference between standard and actual costs and can be favorable or unfavorable. 3) Examples show how to calculate variances for labor costs, overhead costs, and prepare flexible budgets at different activity levels.
Fma10
- 2. Standard Costing & Variance Analysis • Standard costing involves the preparation and use of standard costs, their comparison f p with actual costs and the analysis of variances to their causes and points of p f incidence narain@fms.edu
- 3. Analysis of Variance • V i Variance is the difference between Standard i h diff b S d d cost and Actual cost (V=S-A) • Variance can be Favourable or Unfavourable • Variance is computed and is analysed for its p y causes and assigning responsibilities • Variance is computed with cost components: 1. Direct Material 2. 2 Direct Labour 3. Overheads narain@fms.edu
- 5. Labour Variance Labour Cost Variance narain@fms.edu
- 6. Illustration A gang of workers usually consists of 10 skilled, 5 semi- skilled and 5 unskilled men in a factory. They are paid at standard h l rate of R 1 25 R 0 80 and R t t d d hourly t f Rs. 1.25, Re. 0.80 d Re. 0.70 respectively. In a normal working week of 40 hours the gang is expected to produce 1 000 units 1,000 units. In a certain week, the gang consisted of 13 skilled, 4 semi- skilled and 3 unskilled men. Actual wages paid at the rates of Rs. 1.20, Re. 0.85 & Re. 0.65 respectively. Two hours were lost due to abnormal idle time and 960 units were produced. Compute labour variances. narain@fms.edu
- 7. Solution • Labour Cost Variance = Rs. 70 (A) • Labour Rate Variance = Rs. 24 (F) L b R t V i R • Labour Time Variance = Rs. 94 (A) • Idle Time Variance = Rs. 43.1 (A) • Labour Efficiency Variance = Rs. 50.9 (A) • Labour Mix Variance = Rs. 58.9 (A) • Labour Yield Variance = Rs. 8 (F) L b Yi ld V i R narain@fms.edu
- 9. Illustration In a factory the standard units of production for the year were fixed at 1,20,000 units and overheads were estimated t b Fi d – R 13080 and V i bl – R ti t d to be: Fixed Rs. d Variable Rs. 6,720. Actual production during April of the year was 8 000 8,000 units. The actual overheads amounted to: Fixed – Rs. 1,305 and Variable – Rs. 562. Find the overhead variances. narain@fms.edu
- 10. Solution • Overhead Cost Variance = Rs. 547 (A) • Variable V i bl O/h Cost Variance = Rs. 114 (A) C tV i R • Fixed O/h Cost Variance = Rs. 433 (A) • Fixed O/h Budget Variance = Rs. 215 (A) • Fixed O/h Volume Variance = Rs. 218 (A) • Variable O/h Spending Variance = Rs. 2 (A) • Variable V i bl O/h Effi i Efficiency Variance = Rs. 112 (A) V i R narain@fms.edu
- 11. Budgeting
- 12. Budgetary Control Budgetary control involves the establishment of g y f budgets relating to the responsibilities of executives to the requirements of a policy, q f p y and the continuous comparison of actual with budgeted results, either to secure by g y individual action the objective of that policy or to provide a basis for its revision. p f narain@fms.edu
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- 14. Types of Budgeting • Zero base budgeting g g • Fixed and Flexible budgeting • Performance budgeting • Responsibility Accounting narain@fms.edu
- 15. Illustration With the following data for a 60% activity, activity prepare a budget at 80% and 100% activity Production at 60% capacity – 600 units Material Rs. 100 per unit Labour Rs. 40 per unit Expenses Rs. 10 p unit p per Factory Expenses Rs. 40,000 (40% fixed) Administration expenses Rs. 30,000 (60% fixed) Rs 30 000 narain@fms.edu
- 16. Flexible Budget Solution for the department …… Capacity Output (units) Particulars 600 800 1000 Material - Rs. 100/- 60,000 80,000 100,000 Labour - Rs. 40/- 24,000 32,000 40,000 Expenses - Rs. 10/ Rs 10/- 6,000 6 000 8,000 8 000 10,000 10 000 Factory Expenses - Rs. 40/- 24,000 32,000 40,000 Administration Expenses - Rs. 20/- 12,000 16,000 20,000 Total Variable Costs 126,000 126 000 168,000 168 000 210,000 210 000 Fixed Costs: Factory Expenses (40%) 16,000 16,000 16,000 Administration Expenses (60%) Ad i i t ti E 18,000 18 000 18,000 18 000 18,000 18 000 Total Costs 160,000 narain@fms.edu 202,000 244,000