Standard Cost

Standard Cost

1. Material Price Variance (MPV)

   • MPV = AQ purchased (AP-SP)
   • C A U S E S
     • 1. Quality of Materials > Better quality vs inferior 2. Bulk Purchases > Lower price due to discount   given 3. Skill/ Experience of workers.  > Higher skills vs lower skills

2. Material Quantity Variance (MQV)

   • MQV = SP (AQ used - SQ)
   • C A U S E S
     • 1. Quality of Materials > Better quality vs inferior 2. Bulk Purchases > Lower price due to discount   given 3. Skill/ Experience of workers.  > Higher skills vs lower skills

3. Labour Rate Variance (LRV)

   • LRV = AH (AR-SR)
   • C A U S E S
     • 1. Overtime  > Overtime rate higher than standard rate 2. Quality of materials  > Lower quality leading to more rework 3. Skill/ experience of workers  > higher skills vs lower skills => efficiency

4. Labour Efficiency Variance (LEV)

   • LEV = SR (AH - SH)
   • C A U S E S
     • 1. Quality of Materials > Better quality vs inferior 2. Bulk Purchases > Lower price due to discount   given 3. Skill/ Experience of workers.  > Higher skills vs lower skills

5. Variable Overhead Rate Variance (VORV)

   • VORV = Actual VOH - (AH x SR)
   • C A U S E S
     • 1. Higher mixed of skilled indirect labour 2. Shutdown of key suppliers increased indirect materials prices 3. A spike in crude oil prices increased factory utility prices

6. Variable Overhead Efficiency Variance (VOEV)

   • VOEV = SR (AH - SH)
   • C A U S E S
     • 1. Quality of materials 2. Supervision/ training

7. Fixed Overhead Spending Variance (FOSV)

   • FOSV = Actual FOH - Budgeted FOH
   • C A U S E S
     • Examples: a. Increase in salaries b. Additional depreciation due to purchase of equipment c. Increase in rental
   • = caused by a combi of price & quantity factors related to use of fixed overhead goods & services

8. Fixed Overhead Volume Variance (FOVV)

   • FOVV = Budgeted FOH - Applied FOH
   • C A U S E S
   • Measures extent to which product capacity is utilised
   • ≠ control cost
   • = alert management that facilities are over/under utilised above management's expectation

9. Cost Flows

   • Inventories
     • recorded at cost
   • Variances
     • Favourable
       • = credits; savings in production costs
     • Unfavourable
       • = debits; excess in production costs
   • Standard cost variances
     • They are usually closed out to COGS!
     • Favourable
       • DEcreases COGS
     • Unfavourable
       • INcreases COGS