Cost Accounting Is the Process of Recording Production & Cost of Supply of the Product or Service. This Will Help to Higher Level Authority TO Take the Financial Decisions & Eliminate the Inefficiency Cost & for Forecast Budgeting.
Standard Cost Account:
In Standard Costing, we assign The Specific Standard Cost OF Direct Material, Direct Labor & Overhead Expenses to Product Other Wise Then Actual Cost of Material, Labor & Overhead. These Standard Costs Are Based on The Standard sufficient Cost of Material, Labor & Overhead As per Standard follow By Industries.
Although The Standard Cost Assigned to the Product or Service, The Business Will Still Have to Pay the Actual Cost of Direct Material & Labor. So, They Will need to Calculate the Difference Between Standard Cost & Actual Cost for Finding Out Whether They Have Spending More OR Not As per the Planned Amount. This Analysis Known as Variance Analysis.
By the Variance Analysis, If We Found That the Actual Cost Is Higher Than the Expected Cost It Will Be Make Adverse Effect on Business Profit and Company’s Profit Will be Lesser than the Anticipated Profit. If the Actual Cost Is Lesser Than the Expected Cost, it Will Make Favorable Effect on Business Profit and Company’s Profit Will be More than the Anticipated Profit.
For Example
Example 1
As Per Standard Industries Practice for Production Of 1 Unit of FG Product We Required 2 Kg Of R/M @ 200 Per Kg & Direct Labor 1.5 Hrs. @ Rs. 50 per Hrs.
But Actual Company Spend Following for Production Of 1000 Unit Of FG.
Material = 2000 Kg @ 210
Labor Cost = 1500 Hrs. @ 55 Per Hrs.
| Standard Cost | Actual Cost | Difference | Favorable or Unfavorable | |
| Material | (1000*2*200) 400000 | (2000*210) 420000 | 20000 | Unfavorable |
| Labor | (1000*1.5*50) 75000 | (1500*55) 82500 | 7500 | Unfavorable |
Example 2
As Per Standard Industries Practice for Production Of 1 Unit of FG Product We Required 2 Kg Of R/M @ 200 Per Kg & Direct Labor 1.5 Hrs. @ Rs. 50 per Hrs.
But Actual Company Spend Following for Production Of 1000 Unit Of FG.
Material = 1800 Kg @ 210
Labor Cost = 1400 Hrs. @ 55 Per Hrs.
| Standard Cost | Actual Cost | Difference | Favorable or Unfavorable | |
| Material | (1000*2*200) 400000 | (1800*210) 378000 | 22000 | Favorable |
| Labor | (1000*1.5*50) 75000 | (1400*55) 77000 | 2000 | Unfavorable |
As Per Above Example We Can See That Even Though Worker Should Work More Efficiently But Due To Increase In Price Of Labor & Material It Seen Less Favorable AS It Have.