Analysis of Differences between Actual Costing and Standard Costing
The standard cost also calculates direct labor and manufacturing overhead costs as if they were variable costs.
Manufacturing costs are broadly divided into direct material costs (goods), direct labor costs (personnel), and manufacturing overhead costs (machinery). Most of the variable costs are accounted for by direct material costs and subcontracted processing costs, while manufacturing variable costs (direct costs) are included as part of manufacturing overhead, such as machinery utility costs, shipping costs for specific products, and purchase costs.
And not only direct material costs, which are variable costs, but also direct labor and manufacturing overhead costs, which are fixed costs, are expressed in a variable cost-like formula to calculate standard costs.
- Direct material cost = unit price x quantity
- Direct labor cost = wage rate x man hours
- Manufacturing Overheads = Allocation Rate x Operating Hours
Direct material costs (goods)
The production control system functions based on master information such as item masters, BOM (bill of materials) and unit price masters, but the system does not always operate according to the definitions of the masters in the daily workplace.
For example, the amount of material input in the shop floor exceeds the required amount of material based on the BOM, or the production performance does not improve as planned due to scrap, or the purchase price at the time of issuance of a Purchase Order Order Order (P/O) is lower than the price based on the master purchase price per unit, thanks to Nego, and there are differences between master information and the actual performance in the shop floor.
This example is the difference between Qty difference and Price difference, which is directly related to material costs.
- Price difference = (Actual purchase price - standard purchase price) x actual quantity
- Quantity variance = (Actual quantity - standard quantity) x standard purchase price
The practical form format looks like this
Direct labor costs (people)
In the case of direct labor costs, the actual activity of each work procedure is collected in the daily work report and
- Actual direct labor costs ÷ actual hours worked
Allocation rate difference is the difference caused by the difference between the standard wage rate (allocation rate) and the actual wage rate calculated in Section 2.2, and activity difference is the difference caused by the difference in working hours.
- Difference in wage rate = (Actual wage rate - Standard wage rate) x Actual working hours
Actual wage rate = Actual direct labor costs / Actual work hours - Difference in working hours = (actual working hours - standard working hours) x standard rate of pay
The practical form format looks like this
Although actual man-hours (direct man-hours) can be directly aggregated per department (cost center), to calculate the number of direct man-hours per item (number of minutes per item), it is divided proportionately according to the standard activity and manufacturing volume that have been set up in advance in the master.
- Total direct man-hours by item = Total direct man-hours by department x {(standard man-hours x actual production quantity)/SUM (standard man-hours x actual production quantity)}
The concept of calculating the direct labor cost per unit on a "man hours x labor rate" basis is used by the ordering party to provide a rough estimate of subcontracted processing costs to the ordering party, but it is also used to calculate the labor cost per product.
Manufacturing overhead (machinery)
Most of the variable costs of manufacturing costs are made up of direct material and subcontracted processing costs, but strictly speaking, the cost of utilities to run the machine should be classified as a variable cost, while manufacturing overhead costs are divided into manufacturing variable costs and manufacturing fixed costs.
The difference between the standard operating hours (full operating hours) and actual operating hours is the capacity variance, which is converted into a monetary value by multiplying the standard fixed cost by the standard fixed cost per unit, and represents the loss when the machine load (load) is less than capacity.
On the other hand, the efficiency variance represents the loss when the actual capacity of the machine does not meet the standard capacity. The difference between the standard capacity time, which is the difference between the standard capacity time, which is the actual production volume divided by the standard capacity, and the actual capacity time, which is actual capacity divided by actual capacity, is the efficiency variance time, and the operation variance amount is converted into a monetary value by multiplying it by the standard fixed cost unit price.
The budget variance is the variance that exceeds actual manufacturing overhead costs (allocation rate x actual operating hours) due to an increase in the unit cost of materials and labor rates.
Difference between actual costing and standard costing
In the actual costing, the total direct material cost is calculated by the standard unit cost of material x actual input quantity, and the total indirect manufacturing cost is calculated by the standard unit cost (time) x actual working hours, and as a result, the unit cost of products and intermediate products can be calculated in real time (preliminary costing). up and the inventory valuation is always available.
When the cost of materials at standard cost is "standard amount used = child requirement (BOM) x production volume
- Standard unit purchase price (unit purchase price master) x standard usage
But in actual cost
- Standard unit purchase price (unit purchase price master) x actual amount used
For example, if you produce 100 units of a product that uses four bolts per product, the standard cost of the product would be
- Standard purchase price x 4 units x 100 units
However, in the case of actual cost
- Standard purchase price x (4 units x 100 units + NG)
In other words, there is no price difference between actual cost and standard cost. In other words, there is no price difference between actual cost and standard cost, but a quantity difference will be generated for the standard purchase price x difference.
In addition, labor cost at standard cost is
- Standard rate x standard working hours
But in actual cost
- Standard labor rate x actual working hours (standard working hours + lost time)
This means that there will be no difference in wage rates as well, but there will be a difference in working hours. In other words, there will be no difference in wage rates, but there will be a difference in working hours.