Budgeting and standards costing
Apskaitos savarankiškas darbas. Introduction. Standards cost and other predetermined costs. Types of Standards. Selection of Standards. Direct materials standards cost, direct labor standard cost and indirect standard cost. The Standard Cost for Direct Materials. The Standard Cost for Direct Labor. Indirect Standard Cost. Direct materials cost variance, direct labor cost variance and indirect cost variance. Direct Materials Variances. Direct Labor Variances. Overhead Variances. Budgeting, standard costing and budgetary control. Budgeting. Standard Costing. Budgetary control. Conclusion. References.
A direct materials price variance (PV) can result from failure to take purchase discounts, unexpected price change of materials, changes in freight costs, variation in grades of materials, or other causes. The purchasing department is often the office most likely to provide an explanation or have the responsibility for materials price variances. Care must be taken in interpreting direct materials price variances. A favorable direct materials price variance could lead to high manufacturing costs if the low-cost materials are of poor quality (Coobs, Hobbs, Jenkins 2005). Downstream costs such as scrap, rework, schedule disruptions, or field service costs could exceed the price savings from lower materials prices. A firm with a differentiation strategy is likely to fail when it pursues favorable price variances through purchases of low-quality materials. A firm that competes on low cost also is likely to be doomed if the quality of its products is below customer expectations or it increases downstream costs.
Incidentally, studies have revealed that variable overhead fluctuates with the number of hours worked. However, the number of hours worked may not vary proportionately with the volume of production owning to the fact that overheads tend to depend upon the passage of time and generally there is a difference between actual and standard efficiency. Consequently, instead of output achieved, time worked is better indicator of the activity level. Thus, variable overhead variance arises owning to variations in budgeted labor efficiency or budgeted expenditure from actual efficiency or expenditure.
The variable overhead variance may be classified into the following types for the purpose of planning and control:
'Ascertainment of information about actual and use of Standard Costs.
DAVID E. STOUT, EDWARD J. BLOCHER, GARY COKINS and KUNG H. CHEN Cost Management: A Strategic Emphasis ISBN: 978-0-07-312815-3, 2006
COOMBS H., HOBBS D. And JENKINS E. ‘Management accounting: Principles and applications‘, Great Britain, 2005.