Professional Documents
Culture Documents
Cost
Direct material
The main material/components used for manufacturing a product is Direct material i.e. Wood used in chair ,traceable Other subsidiary materials used are included in OH i.e. glue, nails, polish etc, not traceable
Direct Labour
Direct human efforts for productions, traceable to specific products. Indirect labour are human efforts helping the productions process, not directly engaged on production, i.e. Helper,supervisor,watchman etc. Indirect labour is included in OH
Production Overheads: All manufacturing expenses other than DM and DL are POH i.e.
Supervisor salaries Inspection expenses Indirect expenses Depreciation of assets used in production Factory taxes Rent, rates and insurance of factory premises, power used in factory building, plant ect.etc. One of the tasks of Management Accountant is
To
control
Costs
Standard Cost
S t a n d a r d C o s t i n g a n d B u d g e t a r y c o n t r o l
What should be the cost of production What should be the cost of one unit produced Now we have a limit under which we have to spend. Standard cost to produced one unit Standard purchase price per unit of raw material Standard use/consumption of raw material to produce one unit of out put Standard Labour rate per hour Standard labour time used to produce one unit of output Standard POH
Standard=Achievable in only perfect working environment/conditions Attainable Standard=Ideal less estimated allowance for wastage and inefficiencies Current Standard=Attainable +/- Current allowance for wastage and inefficiencies Basic Standard=Changes in efficiencies in long period of time
Variance Expressed
Unfavorable/Debit balance/Adverse Favorable/credit balance
St. cost of material on actual outputxxx Actual cost of material on actual output.xxx xxx Total variance may be known by adding price variance +,- usage variance
Calculation of three cost variances Production OH Variances There are two types of POH variances
Volume Variance
(St. hours allowed for actual output-Actual hours worked)x st. per hour rate
Or(it only an other expression)
St. hours x st.per hour rate.xxx Actual. hours x st.per hour rate.xxx
Calculation of three cost variances Production Fixed OH Variances There are two types of PFOH variances
Calculation of FOH volume variances First FOH applied/absorbed rate will be calculated