What are standard costs based on?

What are standard costs based on?

Standard cost is based on the combination of a price (or rate) standard and quantity (or hours) standard. The quantity of materials required to complete one good unit of product. The final delivered cost of materials per unit of measure (e.g., measured in yards or pounds).

How are standards for materials and labor costs determined?

1. Standard costs are determined for the three elements of cost – direct materials, direct labor, and factory overhead. 2. The standard costs, the actual costs, and the variance between the actual and standard costs are recorded in appropriate accounts.

How is material standard cost calculated?

To determine these costs, you’ll need to multiply the rate of each by the quantity (in units or hours). For example, if the direct materials price is $10 and the standard quantity is 20 pounds per unit, you would multiply $10 by 20 to get $200. This would be the standard cost for the direct materials only.

What is the standard cost of material?

The standard cost is an expected amount paid for materials costs or labor rates. The standard quantity is the expected usage amount of materials or labor. A standard cost may be determined by past history or industry norms.

What do you mean by standard cost and standard costing?

Standard cost is a predetermined cost. It is a determination in advance of production of what should be that cost. When standard costs are used for cost –control, the technique is known as standard costing.

How are standards established for direct materials?

Setting direct materials standards. The standard price per unit for direct materials should reflect the final, delivered cost of the materials, net of any discounts taken. The standard price is for a particular grade of material, purchased in particular lot sizes, and delivered by a particular type of carrier.

How is labor standard calculated?

You calculate the standard price by multiplying the direct labor hourly price by the standard job completion time. For example, one employee can produce 10 completed units in two hours. The direct labor hourly cost is $9 per hour and the standard direct labor time is two hours.

How do you calculate labor and material variances?

First, to calculate the materials price variance, subtract the actual price from the standard price and then multiply by the actual quantity. Next, to find the materials quantity variance, subtract the actual quantity from the standard quantity and then multiply by the standard price.

How are cost accounting standards set?

Multiply the cost of each unit of materials by the number of units of materials needed. Finally, there is the overhead standard cost. Multiply the overhead cost per unit by the number of units and then add any fixed overhead costs. Add all three of these together to get the final standard cost.