Page 238 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

= 13,600 – 14,250 Notes
= ` 650 (A)
(b) Fixed Overhead Cost Variance:
FOCV = (Recovered fixed overheads – Actual fixed overheads)

= (8,000 × 1) – 10,200
= ` 2,200 (A)
(c) Fixed Overhead Expenditure Variance:
FOEV = (Budgeted fixed overheads – Actual fixed overheads)

= (10,000 × 1) – 10,200
= ` 200 (A)
(d) Fixed Overhead Volume Variance:
FOVV = (Recovered fixed overheads – Budgeted fixed overheads)

= 8,000 – 10,000
= ` 2,000 (A)

Task Describe the procedure of establishing standard costs within the divisions of
material, labour and overhead costs.



Case Study Effect of Assumed Standard Levels

arden Company has experienced increased production costs. The primary area
of concern identified by management is direct labour. The company is considering
Hadopting a standard cost system to help control labour and other costs. Useful
historical data are not available because detailed production records have not been
maintained.
To establish labour standards, Harden Company has retained an engineering consulting
firm. After a complete study of the work process, the consultants recommended a labour
standard of one unit of production every 30 minutes, or 16 units per day for each worker.
The consultants further advised that Harden’s wage rates were below the prevailing rate
of $ per hour.
Harden’s production vice-president thought that this labour standard was too tight, and
from experience with the labour force, believed that a labour standard of 40 minutes per
unit or 12 units per day for each worker would be more reasonable.

The president of Harden Company believed the standard should be set at a high level to
motivate the workers and to provide adequate information for control and reasonable
cost comparison. After much discussion, management decided to use a dual standard. The
labour standard of one unit every 30 minutes, recommended by the consulting firm,
would be employed in the plant as a motivation device, while a cost standard of
Contd...

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