- October 2, 2021 at 12:20 pm #636865Imran.SajjadMember
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Budgeted cost for Product X and Y:
Product X = (200 x $20) = $4000
Product Y = (120 x $25) = $3000
Total cost = $7000
Actual cost for Product X and Y:
Product X = (190 x $22) = $4180
Product Y = (150 x $24) = $3600
Total cost = $7780
Standard cost for Product X and Y:
Product X = (190 x $20) = $3800
Product Y = (150 x $25) = $3750
Total cost = $7550
Is it true that Budgeted cost is what we expect the cost to be in the future which we then compare with the actual cost to see the difference between what we expected and what we actually paid [correct?]
But Standard cost is what we expect the cost to be in the future that each unit is budgeted to take
by taking actual units which we then compare with the actual cost to see the difference between what we expected and what we actually paid [correct?]
But Sir I don’t get the standard cost because I had to search for this but did not get the right understanding about it.
Is it correct that budgeted cost is the Total Budgeted cost that we expect to be in the future; While standard cost is the each unit cost that is budgeted to take?
The difference between them is the total cost and per unit cost? That is why when we calculate standard cost we need to take actual units and multiply that by the budgeted per unit cost?
Lastly please tell me what is the difference between the Total Budgeted cost of $7000 and the Total Standard cost of $7550 that is calculated above from your point of view? I mean what do you understand by that?October 2, 2021 at 4:09 pm #636874John MoffatKeymaster
- Topics: 56
- Replies: 51576
The budgeted cost is the total we expect to spend.
The standard cost per unit is the budgeted cost per unit and is calculated by dividing the total budgeted cost by the budgeted production. This is how must each unit should cost to produce.
At the end of the period we compare what we actually spent with what we should have spent for the actual level of production. (Obviously if we produce more or less we will expect to spend more or less in total).
The difference between the $7,550 and the $7,000 is not really of any interest but is because we produce different quantities than we expected to produce and therefore expect the costs to be different in total.
All of this is explained in my free lectures. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well. If you are still worried after watch the lectures then do watch the relevant Paper MA lectures, because this is revision from Paper MA (was F2).
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