- October 1, 2021 at 10:56 am #636814John1998mMember
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If budgeted cost is what we expect the cost to be in the future then what is standard cost and why do we calculate the standard cost on actual units??
Is it true that efficiency and usage variance is favorable when actual usage is lower than standard usage?
Is it also correct that basic variance would not be asked in paper PM as u said in the lecture because I forgot so I should not waste my time on them. correct?October 1, 2021 at 4:32 pm #636831John MoffatKeymaster
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The standard cost per unit is the total of all the costs involved materials, labour, and overheads.
To get the standard cost we budget how much we will spend on each of the costs and are then able to calculate the budgeted or standard cost per unit.
The usage variance relates to the material and is favourable if we use less material that we should for the level of production. The efficiency variance relates to labour and is favourable if we use fewer hours that we would have expected to for the actual level of production.
In Paper PM you will not get full questions on just basic variances. However bits of basic variances can be (and are) asked and an understanding of basic variances is needed to be able to understand the advanced variances which are asked in almost every exam.
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