standard costing
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I having problem with variances, can anyone help with some explanation
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standard costing
what is the problem and I will try and help you?0 -
standard costing
sometimes I am abit confuse if I asked to calculate the material price is it the same as standard price.0 -
standard costing
If you had an item that required 10kg costing ΓβΓΒ£5 per kg to make one unit and you have to make 100 units (therefore you would need 100 x 10kg = 1000 kg to make these units) you would have to look at both the standard cost (above) and the actual cost (normally you are told what the actual cost was) So you would write it out as follows:<BR><BR>1000 kg should have cost (1000 kg x ΓβΓΒ£5) = ΓβΓΒ£5000<BR>But did actually cost ΓβΓΒ£6000*<BR>Therefore the variance is ΓβΓΒ£1000 Adverse<BR><BR>* This figure would normally be shown to you in the question, either that or you would have previously calculated out the actual price per unit and therefore you would just take the 1000kg x ΓβΓΒ£actual costs calculated.<BR><BR>Your difference between the should have cost and the actual cost is your variance.<BR><BR>0 -
standard costing
point taken but is the material price the same as the standard price bcause sometimes they asked to calculate the standard price and sometimes the asked to calculate the material price0 -
standard costing
Sorry that I did not reply properly to your question yesteday! I thought you were asking about how you knew the difference between the standard cost calculation and the actual cost calculation variances!!! <BR><BR>Anyway, on your actual question..... I do not think they would ever just ask what the material price is, unless you have previously calculated out another figure that would allow you to choose whether it was the standard or actual material price. <BR><BR>When I was working through my costing exercises I cannot recall having this dilema so I think they will always ask you to calculate the STANDARD cost or the ACTUAL cost of materials or ask you to calculate the MATERIAL PRICE VARIANCE, at which point you will have to calculate both standard and actual (as above message) and show the variance between the two.0 -
standard costing
then you are saying that the standard cost and the actual cost is the same,0 -
standard costing
No - sorry I am not explaining this very well lol.<BR><BR>The standard cost is the cost per kg or unit etc that the company has set on their standard cost card. Therefore, if the standard cost card said that each unit required 10kg of materials at a cost of ΓβΓΒ£5 per kg then the standard cost would be ΓβΓΒ£50<BR><BR>(that means that the company expects that every time they make one unit of this product, they will have to pay ΓβΓΒ£50 for the material to make it)<BR><BR>However if they asked you to calculate the actual cost for this item, you would take the actual total cost (which they will give you, or if you are working it out in real life, then you would have an invoice or some paperwork to let you know how much you actually paid for the material) and you would divide the money amount by the kg amount (say they told you the material you purchased cost you ΓβΓΒ£75) you would then divide ΓβΓΒ£75 by 10kg of the material, which equals ΓβΓΒ£7.50 per unit of material.<BR><BR>Or if you have a look back at the original example I gave you on variances, if you are looking for the standard cost of material - that would be the ΓβΓΒ£5 per kg (as ΓβΓΒ£5 per kg x 1000kg = ΓβΓΒ£5000) but to work the actual cost, you would take the ΓβΓΒ£6000 that it actually cost you and divide it by te 1000kg you used to make your units, therefore ΓβΓΒ£6000 / 1000kg = ΓβΓΒ£6 per kg.<BR><BR>I am sorry if I am confusing you even more here! Do let me know if I am and I will go and get an actual example from a past exam paper or whatever and I will write out the question and answer for you.<BR>0