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I have two little questions maybe silly ones but they confused me I hope you would not mind asking me this.
1) When we calculate actual cost we always multiply actual units with actual cost per unit. BUT can we also calculate actual cost by multiplying actual units with standard rate per unit (like this)?
Actual cost = (actual kgs x actual rate per kg)
Actual cost = (actual kgs x standard rate per kg)Both of them are called actual costs?
2) When we calculate actual cost we always multiply actual units with actual cost per unit. BUT can we also calculate actual cost by multiplying actual units with standard rate per unit (like this)?
Standard cost = (actual kgs x standard rate per kg)
Standard cost = (standard kgs x standard rate per kg)Both of them are called standard costs?
1. The actual total cost is usually given in questions. If not, then it is the actual kgs x the actual cost per kg.
2. No, because that would not give the total actual cost.
The actual total cost is not going to be the standard total cost – the fact they are different is why there are variances.
Thanks but I need a more in-depth answer to the following doubts…
1) This is how we calculate the total actual cost / total standard cost / total budgeted cost:
Total actual cost = actual kgs x actual cost per kg
Total standard cost = actual kgs x standard cost per kg
Total budgeted cost = budgeted kgs x standard cost per kg2) These THREE costs are relevant in all of the variances and the comparison between them is called variance.
3) What is the difference between total standard cost and total budgeted cost?
4) We always compare the actual cost with standard cost in all the variances?
1. Correct
2. For the cost variances we are comparing the actual cost with the standard cost.
3. As you wrote in (1), the total standard cost is based on actual production. The total budgeted cost is based on the budgeted production.
4. Correct for the cost variances.
1) I asked you about the standard cost (but forgot to ask all of them) which if I get this correct can be calculated in the following depending on budgeted hours / actual hours / standard hours such as:
a) Standard cost is calculated with budgeted hours
standard cost = (budgeted hours x standard rate per hour)b) Standard cost is calculated with actual hours
standard cost = (actual hours x standard rate per hour)c) Standard cost is calculated with standard hours
standard cost = (standard hours x standard rate per hour)Please tell me first that these all are ways used to calculate standard costs but which way do we prefer
2) Standard cost per kg is actually the budgeted cost per unit which is calculated as (Total Budgeted costs / Total Budgeted units) which is actually what we do when flexing for actual production.
Thanks for your patience 🙂
The standard cost per unit for materials is the budgeted kg per unit multiplied by the budgeted cost per kg.
For labour, the standard cost per unit is the budgeted hours per unit multiplied by the budgeted cost per hour.The budgeted total cost is the budgeted units multiplied by the standard cost per unit.
The standard cost of the actual production is the actual units produced multiplied by the standard cost per unit.
It is not a question of which we prefer. It depends what is asked for.
It might help you to watch the Paper MA lectures on costing, because this is all revision from Paper MA (was Paper F2).
I got you 🙂 but I have little confusion, sorry to ask again
(1)
Total budgeted cost = budgeted units x standard cost per unit
Total actual cost = actual units x actual cost per unit
Total standard cost = actual units x standard cost per unitThe standard cost is always calculated using actual production?
We cannot calculate the standard cost with budgeted production because it will be the total budgeted cost (correct?)
(2) Material efficiency is calculated as:
standard cost = (actual hours x standard rate)
budgeted cost = (standard hours x standard rate)But you previously said that actual cost is compared with standard cost with actual production in cost variances but in material efficiency, we are comparing total standard cost and budgeted cost – (but why)?
(3) When we multiply standard hours with standard cost per hour we get the total budgeted cost (or total standard cost?)
(4) You said that all cost variances are compared between actual cost & standard cost but this is not the case in the fixed overhead expenditure variance such as:
Fixed overhead expenditure = total budgeted expenditure – total actual expenditure
I am sorry but this is getting ridiculous.
If you have problems with the Paper PM lectures on basic variances then as I wrote before watch the Paper MA lectures (because they go more slowly. The Paper PM lectures are just to revise the knowledge from Paper MA).
Also, as I have written three times now, very little is asked in the Paper PM exam on these basic variances. It is the advanced variances that you need to concentrate on for Paper PM.
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