Standard Costing

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Standard Costing

Standard costing is an important subtopic of cost accounting. Standard costs are usually associated with a manufacturing company's costs of direct material, direct labour, and manufacturing overhead. In this Report, it will analyse these variances and make suggestions for improvement. The variances are on the attached spreadsheet.

Sales Variances

On the attached sheet, the total sales variance is £61,000 adverse. This is reported for by a favourable price variance of £9,000 an adverse volume variance of £70,000. The favourable price variance would be reported for by an increase within the Selling Price, and due to a shortage in supply or the firm having to increase the Selling Price to cover increased cost of production.

Material Variance

The total variance in material was a favourable £6,840 which as seen from the attached spreadsheet, it gives me profit. The price variance gives me a profit also, this could be because of the material being cheaper with a new supplier or it could possibly have been predicted to high than the real price.

Labour Variances

The total labour variance gives me an adverse of £500. This could possibly be because that people were working for a higher wages rather than a low wage per hour.

Summary

In overall, the view of this business is that the selling price needed to have been set higher than what it was predicted. This was because of the shortage in supply. I recommend that the business should entail more stock by the figures shown in this year's statement. The material that has been used has left the business in a position that they have bought in cheaper material which means that it is making them a good profit and this should continue the following year.