What is Standard Costing?
A cost control system that compares actual costs with pre‑determined (standard) costs to identify variances and improve efficiency.
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| Term | Definition |
|---|---|
| What is Standard Costing? | A cost control system that compares actual costs with pre‑determined (standard) costs to identify variances and improve efficiency. |
| What are Standard Costs? | Predetermined unit costs set under efficient operating conditions; used as benchmarks for evaluating performance. |
| What is Variance Analysis? | The process of comparing actual results to standards |
| What are the main types of Variances? | Material |
| What is Material Cost Variance (MCV)? | (Standard Cost − Actual Cost) = (SP × SQ) − (AP × AQ). Measures overall cost difference for materials. |
| What is Material Price Variance (MPV)? | (SP − AP) × AQ. Measures the effect of paying a different price than expected for materials. |
| What is Material Usage Variance (MUV)? | (SQ − AQ) × SP. Measures efficiency in using materials compared to standards. |
| What is Labour Cost Variance (LCV)? | (SR × SH) − (AR × AH). Measures difference between standard labour cost and actual labour cost. |
| What is Labour Rate Variance (LRV)? | (SR − AR) × AH. Measures the effect of paying labour at rates different from standard. |
| What is Labour Efficiency Variance (LEV)? | (SH − AH) × SR. Measures efficiency of labour hours used. |
| What is Variable Overhead Variance (VOV)? | (Standard Variable OH for Actual Output − Actual Variable OH). Measures efficiency and spending control on variable overheads. |
| What is Fixed Overhead Variance (FOV)? | (Standard Fixed OH for Actual Output − Actual Fixed OH). Measures under‑ or over‑absorption of fixed overheads. |
| What is Sales Variance? | Measures the difference between actual and budgeted sales (in quantity or value). |
| What is Sales Price Variance (SPV)? | (Actual Price − Standard Price) × Actual Quantity. Measures effect of selling at a different price than expected. |
| What is Sales Volume Variance (SVV)? | (Actual Quantity − Budgeted Quantity) × Standard Profit per unit. Measures effect of selling more or fewer units than planned. |
| What is the purpose of Variance Analysis? | To control costs |