2012

UPKAR POLYMERS
NEERAJ JAIN

[PROJECT REPORT ON COSTING]

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UNIVERSITY OF PUNE

PROJECT REPORT ON

COST ACCOUNTING IN MANUFACTURING INDUSTRY STANDARD COSTING & VARIANCES

Bansilal Ramnath Agarwal Charitable Trusts Vishwakarma Institute Technology PUNE 411 037

UNDER THE GUIDANCE OF PROF SHRIRAM M SANE

SUBMITTED BY
NEERAJ PC JAIN D-22 BE INDUSTRIAL ENGINEERING GR NO. 071154

BANSILAL RAMNATH AGARWAL CHARITABLE TRUST`S VISHWAKARMA INSTITUTE OF TECHNOLOGY (An Autonomous Institute Affiliated to University of Pune) PUNE-411037

CERTIFICATE This is to certify that the PROJECT REPORT titled Cost Accounting in manufacturing industry Standard Costing & Variances., submitted by Mr. Neeraj Jain GR No:- 071154 is record of bonafide work carried out by him, under the guidance of Mr. Shriram M Sane for the partial fulfillment of the requirement for the award of the Degree of Bachelor of Industrial/Production Engineering of University of Pune.

Prof. Shriram M Sane (Guide)

Prof. R. J. Dhake (Head of Department)

Examiner :

Place: Pune Date:

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Mr. Neeraj Jain, student of Bachelor in Engineering from Vishwakarma Institute Of Technolgy ,has been pursuing his bachelor degree project under my guidance. As a part of partial fulfillment of Bachelor Degree in Industrial Engineering, he has been doing the project on topic Introduction to Cost Accounting Standard Cost & Variation since August 2011. His behavior and preceedings throughout the project were found to be satisfactory.

I wish him all the best for his future endeavors.

Saurabh Jain
Managing Director Upkar Polymers

ABSTRACT

In recent years, numerous tools such as activity-based costing, the balanced scorecard and target costing have gained prominence in the business community. Nonetheless, traditional management accounting continues to be prevalent in practice. One example is standard costing, which has been used on a wide front during the last century.

The purpose of this study is to examine the use and the relevance of the standard costing system used at the manufacturing company UPKAR POLYMERS and to provide recommendations on how the system can be improved.

In sum, the study shows that the standard costing system is widely used and that it is perceived as relevant. However, some areas for improvement of the standard costing system were identified, for example the communication within the organization and the use of the guidelines regarding allocation bases.

ACKNOWLEDGEMENT

I would like to express my gratitude to all those who have helped and inspired me during my final year project. I would like to take this opportunity to pay my profound gratefulness and express my sincere gratitude to my guide, Prof. S.M. SANE for the valuable guidance in preparation of this final year degree project report. I am also thankful to Mr. SAURABH JAIN from Upkar Polymers for his guidance and insights as regard to costing, who helped in my project.

NEERAJ JAIN

CONTENTS
1. INTRODUCTION 1.1 Objective of study .1 1.2 Scope of study1 1.3 Outline of dissertation2 2. COMPANY PROFILE- UPKAR POLYMERS 2.1 Company profile.3 2.2 Process Of Manufacturing 2.3 Plant Layout.. 2.4 Areas covered during study6 3. THEORY AND LITERATURE SURVEY 3.1 Meaning Cost Accounting .7 3.2 Elements Of Cost ......11 3.3 Classification Of Cost...19 3.4 Installation of costing System27 4. METHODOLOGY 4.1 Standard Costing..31 4.2 Meaning ,Advantages & Limitation ....32 4.3 Process Of Standard Costing & Variances..33 5. RESULTS 5.1 BPDS39 6. SUGGESTIONS FOR IMPROVEMENTS 6.1 suggestions for improvement at workplace.54 6.2 Responsibility assignment- OISR sheet..69 7. CASE STUDY 7.1 Standard Costing At Global Communication Ltd...71 7.2 Company profile APIPL..72 8. IMPLEMENTATION RESULTS/ SUGGESTIONS FOR 76 9. CONCLUSION.84
REFERENCES.

INTRODUCTION
Accounting is the collection and aggregation of information for decision makers including managers, investors, regulators, lenders, and the public. Accounting systems affect behavior and management and have affects across departments, organizations, and even countries. Information contained within an accounting system has the power to influence actions. Standard costing is a management tool for control. In the process, we have taken standards as parameters for measuring the performance. Cost analysis and cost control is essential for any activity. Cost includes material labor and overheads. Sometimes, we need to revise the standards due to change in uses, raw material, technology, method of production etc. For a proper organization, it is required to implement this under a committee for the activity. It is a continued activity for the optimum utilization of resources. Even standards are also subjected to change like the production method, environment, raw material, and technology. Standards may need to be changed to accommodate changes in the organization or its environment. When there is a sudden change in economic circumstances, technology or production methods, the standard cost will no longer be accurate. Standards that are out of date will not act as effective feed forward or feedback control tools. They will not help us to predict the inputs required nor help us to evaluate the efficiency of a particular department. If standards are continually not being achieved and large deviations or variances from the standard are reported, they should be carefully reviewed. Also, changes in the physical productive capacity of the organization or in material prices and wage rates may indicate that standards need to be revised. In practice, changing standards frequently is an expensive operation and can cause confusion. For this reason, standard cost revisions are usually made only once a year. At times of rapid price inflation, many managers have felt that the high level of inflation forced them to change price and wage rate standards continually. This, however, leads to reduction in value of the standard as a yardstick. At the other extreme is the adoption of basic standard which will remain unchanged for many years. They provide a constant base for comparison, but this is hardly satisfactory when there is technological change in working procedures and conditions.
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Meaning of Cost Accounting

Previously, cost accounting was merely considered to be a technique for the ascertainment of costs of products or services on the basis of historical data. In course of time, due to competitive nature of the market, it was realized that ascertaining of cost is not so important as controlling costs. Hence, cost accounting started to be considered more as a technique for cost control as compared to cost ascertainment. Due to the technological developments in all fields, cost reduction has also come within the ambit of cost accounting. Cost accounting is, thus, concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making. According to Charles T. Horngren, cost accounting is a quantitative method that accumulates, classifies, summarizes and interprets information for the following three major purposes:

Operational planning and control Special decisions Product decisions

According to the Chartered Institute of Management Accountants, cost accounting is the process of accounting for costs from the point at which its expenditure is incurred or committed to the establishment of the ultimate relationship with cost units. In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of the activities carried out or planned. Cost accounting, thus, provides various information to management for all sorts of decisions. It serves multiple purposes on account of which it is generally indistinguishable from management accounting or so-called internal accounting. Wilmot has summarized the nature of cost accounting as the analyzing, recording, standardizing, forecasting, comparing, reporting and recommending and the role of a cost accountant as a historian, news agent and prophet. As a historian, he should be meticulously accurate and sedulously impartial. As a news agent, he should be up to date, selective and pithy. As a prophet, he should combine knowledge and experience with foresight and courage.
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Objectives of Cost Accounting The main objectives of cost accounting can be summarized as follows: 1. Determining Selling Price Business enterprises run on a profit-making basis. It is, thus, necessary that revenue should be greater than expenditure incurred in producing goods and services from which the revenue is to be derived. Cost accounting provides various information regarding the cost to make and sell such products or services. Of course, many other factors such as the condition of market, the area of distribution, the quantity which can be supplied etc. are also given due consideration by management before deciding upon the price but the cost plays a dominating role. 2. Determining and Controlling Efficiency Cost accounting involves a study of various operations used in manufacturing a product or providing a service. The study facilitates measuring the efficiency of an organization as a whole or department-wise as well as devising means of increasing efficiency. Cost accounting also uses a number of methods, e.g., budgetary control, standard costing etc. for controlling costs. Each item viz. materials, labour and expenses is budgeted at the commencement of a period and actual expenses incurred are compared with budget. This greatly increases the operating efficiency of an enterprise.

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3. Facilitating Preparation of Financial and Other Statements The third objective of cost accounting is to produce statements whenever is required by management. The financial statements are prepared under financial accounting generally once a year or half-year and are spaced too far with respect to time to meet the needs of management. In order to operate a business at a high level of efficiency, it is essential for management to have a frequent review of production, sales and operating results. Cost accounting provides daily, weekly or monthly volumes of units produced and accumulated costs with appropriate analysis. A developed cost accounting system provides immediate information regarding stock of raw materials, work-in-progress and finished goods. This helps in speedy preparation of financial statements.

4. Providing Basis for Operating Policy Cost accounting helps management to formulate operating policies. These policies may relate to any of the following matters:
o o o o

Determination of a cost-volume-profit relationship Shutting down or operating at a loss Making for or buying from outside suppliers Continuing with the existing plant and machinery or replacing them by improved and economic ones

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CONCEPT OF COST
Cost accounting is concerned with cost and therefore is necessary to understand the meaning of term cost in a proper perspective. In general, cost means the amount of expenditure (actual or notional) incurred on, or attributable to a given thing. However, the term cost cannot be exactly defined. Its interpretation depends upon the following factors:

The nature of business or industry The context in which it is used

In a business where selling and distribution expenses are quite nominal the cost of an article may be calculated without considering the selling and distribution overheads. At the same time, in a business where the nature of a product requires heavy selling and distribution expenses, the calculation of cost without taking into account the selling and distribution expenses may prove very costly to a business. The cost may be factory cost, office cost, cost of sales and even an item of expense. For example, prime cost includes expenditure on direct materials, direct labour and direct expenses. Money spent on materials is termed as cost of materials just like money spent on labour is called cost of labour and so on. Thus, the use of term cost without understanding the circumstances can be misleading. Different costs are found for different purposes. The work-in-progress is valued at factory cost while stock of finished goods is valued at office cost. Numerous other examples can be given to show that the term cost does not mean the same thing under all circumstances and for all purposes. Many items of cost of production are handled in an optional manner which may give different costs for the same product or job without going against the accepted principles of cost accounting. Depreciation is one of such items. Its amount varies in accordance with the method of depreciation being used. However, endeavor should be, as far as possible, to obtain an accurate cost of a product or service.

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Elements of Cost
Following are the three broad elements of cost: 1. Material
The substance from which a product is made is known as material. It may be in a raw or a manufactured state. It can be direct as well as indirect.

a. Direct Material
The material which becomes an integral part of a finished product and which can be conveniently assigned to specific physical unit is termed as direct material. Following are some of the examples of direct material:

All

material

or

components

specifically

purchased,

produced

or

requisitioned from stores

Primary packing material (e.g., carton, wrapping, cardboard, boxes etc.) Purchased or partly produced components

Direct material is also described as process material, prime cost material, production material, stores material, constructional material etc.

b. Indirect Material
The material which is used for purposes ancillary to the business and which cannot be conveniently assigned to specific physical units is termed as indirect material. Consumable stores, oil and waste, printing and stationery material etc. are some of the examples of indirect material. Indirect material may be used in the factory, office or the selling and distribution divisions.

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2. Labour
For conversion of materials into finished goods, human effort is needed and such human effort is called labour. Labour can be direct as well as indirect.

a. Direct Labour
The labour which actively and directly takes part in the production of a particular commodity is called direct labour. Direct labour costs are, therefore, specifically and conveniently traceable to specific products. Direct labour can also be described as process labour, productive labour, operating labour, etc.

b. Indirect Labour
The labour employed for the purpose of carrying out tasks incidental to goods produced or services provided, is indirect labour. Such labour does not alter the construction, composition or condition of the product. It cannot be practically traced to specific units of output. Wages of storekeepers, foremen, timekeepers, directors fees, salaries of salesmen etc, are examples of indirect labour costs. Indirect labour may relate to the factory, the office or the selling and distribution divisions.

3. Expenses a. Direct Expenses

These are the expenses that can be directly, conveniently and wholly allocated to specific cost centers or cost units. Examples of such expenses are as follows:

Hire of some special machinery required for a particular contract Cost of defective work incurred in connection with a particular job or contract etc.
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b. Indirect Expenses
These are the expenses that cannot be directly, conveniently and wholly allocated to cost centers or cost units. Examples of such expenses are rent, lighting, insurance charges etc.

4. Overhead
The term overhead includes indirect material, indirect labour and indirect expenses. Thus, all indirect costs are overheads. A manufacturing organization can broadly be divided into the following three divisions:
o o o

Factory or works, where production is done Office and administration, where routine as well as policy matters are decided Selling and distribution, where products are sold and finally dispatched to customers

Overheads may be incurred in a factory or office or selling and distribution divisions. Thus, overheads may be of three types:

d. Factory Overheads They include the following things:

Indirect material used in a factory such as lubricants, oil, consumable stores etc. Indirect labour such as gatekeeper, timekeeper, works managers salary etc.

Indirect expenses such as factory rent, insurance, factory lighting etc.

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e. Office and Administration Overheads

They include the following things:

Indirect materials used in an office such as printing and stationery material, brooms and dusters etc.

Indirect labour such as salaries payable to office manager, office accountant, clerks, etc.

Indirect expenses such as rent, insurance, lighting of the office.

f. Selling and Distribution Overheads

They include the following things:

Indirect materials used such as packing material, printing and stationery material etc.

Indirect labour such as salaries of salesmen and sales manager etc. Indirect expenses such as rent, insurance, advertising expenses etc.

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Components of Total Cost

1. Prime Cost
Prime cost consists of costs of direct materials, direct labours and direct expenses. It is also known as basic, first or flat cost.

2. Factory Cost
Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labours and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost.

3. Office Cost
Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.

4. Total Cost
Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.

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Classification of Cost Cost may be classified into different categories depending upon the purpose of classification. Some of the important categories in which the costs are classified are as follows: 1. Fixed, Variable and Semi-Variable Costs The cost which varies directly in proportion with every increase or decrease in the volume of output or production is known as variable cost. Some of its examples are as follows:

Wages of laborers Cost of direct material Power

The cost which does not vary but remains constant within a given period of time and a range of activity inspite of the fluctuations in production is known as fixed cost. Some of its examples are as follows:

Rent or rates Insurance charges Management salary

The cost which does not vary proportionately but simultaneously does not remain stationary at all times is known as semi-variable cost. It can also be named as semi-fixed cost. Some of its examples are as follows:

Depreciation Repairs

Fixed costs are sometimes referred to as period costs and variable costs as direct costs in system of direct costing. Fixed costs can be further classified into:

Committed fixed costs Discretionary fixed costs

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Committed fixed costs consist largely of those fixed costs that arise from the possession of plant, equipment and a basic organization structure. For example, once a building is erected and a plant is installed, nothing much can be done to reduce the costs such as depreciation, property taxes, insurance and salaries of the key personnel etc. without impairing an organizations competence to meet the long-term goals. Discretionary fixed costs are those which are set at fixed amount for specific time periods by the management in budgeting process. These costs directly reflect the top management policies and have no particular relationship with volume of output. These costs can, therefore, be reduced or entirely eliminated as demanded by the circumstances. Examples of such costs are research and development costs, advertising and sales promotion costs, donations, management consulting fees etc. These costs are also termed as managed or programmed costs. In some circumstances, variable costs are classified into the following:

Discretionary cost Engineered cost

The term discretionary costs are generally linked with the class of fixed cost. However, in the circumstances where management has predetermined that the organization would spend a certain percentage of its sales for the items like research, donations, sales promotion etc., discretionary costs will be of a variable character. Engineered variable costs are those variable costs which are directly related to the production or sales level. These costs exist in those circumstances where specific relationship exists between input and output. For example, in an automobile industry there may be exact specifications as one radiator, two fan belts, one battery etc. would be required for one car. In a case where more than one car is to be produced, various inputs will have to be increased in the direct proportion of the output. Thus, an increase in discretionary variable costs is due to the authorization of management whereas an increase in engineered variable costs is due to the volume of output or sales.
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2. Product Costs and Period Costs The costs which are a part of the cost of a product rather than an expense of the period in which they are incurred are called as product costs. They are included in inventory values. In financial statements, such costs are treated as assets until the goods they are assigned to are sold. They become an expense at that time. These costs may be fixed as well as variable, e.g., cost of raw materials and direct wages, depreciation on plant and equipment etc. The costs which are not associated with production are called period costs. They are treated as an expense of the period in which they are incurred. They may also be fixed as well as variable. Such costs include general administration costs, salaries salesmen and commission, depreciation on office facilities etc. They are charged against the revenue of the relevant period. Differences between opinions exist regarding whether certain costs should be considered as product or period costs. Some accountants feel that fixed manufacturing costs are more closely related to the passage of time than to the manufacturing of a product. Thus, according to them variable manufacturing costs are product costs whereas fixed manufacturing and other costs are period costs. However, their view does not seem to have been yet widely accepted. 3. Direct and Indirect Costs The expenses incurred on material and labor which are economically and easily traceable for a product, service or job are considered as direct costs. In the process of manufacturing of production of articles, materials are purchased, laborers are employed and the wages are paid to them. Certain other expenses are also incurred directly. All of these take an active and direct part in the manufacture of a particular commodity and hence are called direct costs. The expenses incurred on those items which are not directly chargeable to production are known as indirect costs. For example, salaries of timekeepers, storekeepers and foremen. Also certain expenses incurred for running the administration are the indirect costs. All of these cannot be conveniently allocated to production and hence are called indirect costs.

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4. Decision-Making Costs and Accounting Costs Decision-making costs are special purpose costs that are applicable only in the situation in which they are compiled. They have no universal application. They need not tie into routinefinancial accounts. They do not and should not conform the accounting rules. Accounting costs are compiled primarily from financial statements. They have to be altered before they can be used for decision-making. 5. Relevant and Irrelevant Costs Relevant costs are those which change by managerial decision. Irrelevant costs are those which do not get affected by the decision. For example, if a manufacturer is planning to close down an unprofitable retail sales shop, this will affect the wages payable to the workers of a shop. This is relevant in this connection since they will disappear on closing down of a shop. But prepaid rent of a shop or unrecovered costs of any equipment which will have to be scrapped are irrelevant costs which should be ignored. 6. Shutdown and Sunk Costs A manufacturer or an organization may have to suspend its operations for a period on account of some temporary difficulties, e.g., shortage of raw material, non-availability of requisite labor etc. During this period, though no work is done yet certain fixed costs, such as rent and insurance of buildings, depreciation, maintenance etc., for the entire plant will have to be incurred. Such costs of the idle plant are known as shutdown costs. Sunk costs are historical or past costs. These are the costs which have been created by a decision that was made in the past and cannot be changed by any decision that will be made in the future. Investments in plant and machinery, buildings etc. are prime examples of such costs. Since sunk costs cannot be altered by decisions made at the later stage, they are irrelevant for decision-making.

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7. Controllable and Uncontrollable Costs Controllable costs are those costs which can be influenced by the ratio or a specified member of the undertaking. The costs that cannot be influenced like this are termed as uncontrollable costs. The difference between controllable and uncontrollable costs is only in relation to a particular individual or level of management. The expenditure which is controllable by an individual may be uncontrollable by another individual.

8. Avoidable or Escapable Costs and Unavoidable or Inescapable Costs Avoidable costs are those which will be eliminated if a segment of a business (e.g., a product or department) with which they are directly related is discontinued. Unavoidable costs are those which will not be eliminated with the segment. Such costs are merely reallocated if the segment is discontinued. Certain costs are partly avoidable and partly unavoidable. 9. Imputed or Hypothetical Costs These are the costs which do not involve cash outlay. They are not included in cost accounts but are important for taking into consideration while making management decisions. For example, interest on capital is ignored in cost accounts though it is considered in financial accounts. In case two projects require unequal outlays of cash, the management should take into consideration the capital to judge the relative profitability of the projects. 10. Differentials, Incremental or Decrement Cost The difference in total cost between two alternatives is termed as differential cost. In case the choice of an alternative results in an increase in total cost, such increased costs are known as incremental costs. While assessing the profitability of a proposed change, the incremental costs are matched with incremental revenue.

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11. Out-of-Pocket Costs

Out-of-pocket cost means the present or future cash expenditure regarding a certain decision that will vary depending upon the nature of the decision made. For example, a company has its own trucks for transporting raw materials and finished products from one place to another. It seeks to replace these trucks by keeping public carriers. In making this decision, of course, the depreciation of the trucks is not to be considered but the management should take into account the present expenditure on fuel, salary to driveRs and maintenance. Such costs are termed as out-of-pocket costs. 12. Opportunity Cost Opportunity cost refers to an advantage in measurable terms that have foregone on account of not using the facilities in the manner originally planned. For example, if a building is proposed to be utilized for housing a new project plant, the likely revenue which the building could fetch, if rented out, is the opportunity cost which should be taken into account while evaluating the profitability of the project. 13. Traceable, Untraceable or Common Costs The costs that can be easily identified with a department, process or product are termed as traceable costs. For example, the cost of direct material, direct labor etc. The costs that cannot be identified so are termed as untraceable or common costs. In other words, common costs are the costs incurred collectively for a number of cost centers and are to be suitably apportioned for determining the cost of individual cost centers. For example, overheads incurred for a factory as a whole, combined purchase cost for purchasing several materials in one consignment etc. Joint cost is a kind of common cost. When two or more products are produced out of one material or process, the cost of such material or process is called joint cost. For example, when cottonseeds and cotton fibers are produced from the same material, the cost incurred till the split-off or separation point will be joint costs.

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14. Production, Administration and Selling and Distribution Costs A business organization performs a number of functions, e.g., production, illustration, selling and distribution, research and development. Costs are to be curtained for each of these functions. The Chartered Institute of Management accountants, ., has defined each of the above costs as follows: i. Production Cost The cost of sequence of operations which begins with supplying materials, labor and services and ends with the primary packing of the product. Thus, it includes the cost of direct material, direct labor, direct expenses and factory overheads. ii. Administration Cost The cost of formulating the policy, directing the organization and controlling the operations of an undertaking which is not related directly to a production, selling, distribution, research or development activity or function. iii. Selling Cost It is the cost of selling to create and stimulate demand (sometimes termed as marketing) and of securing orders. iv. Distribution Cost It is the cost of sequence of operations beginning with making the packed product available for dispatch and ending with making the reconditioned returned empty package, if any, available for reuse. v. Research Cost It is the cost of searching for new or improved products, new application of materials, or new or improved methods.

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vi.

Development Cost The cost of process which begins with the implementation of the decision to produce a new or improved product or employ a new or improved method and ends with the commencement of formal production of that product or by the method.

vii.

Pre-Production Cost The part of development cost incurred in making a trial production as preliminary to formal production is called pre-production cost.

Installation of Costing System The installation of a costing system requires careful consideration of the following two interrelated aspects:

Overcoming the practical difficulties while introducing a system Main considerations that should govern the installation of such a system

Practical Difficulties The important difficulties in the installation of a costing system and the suggestions to overcome them are as follows: a. Lack of Support from Top Management Often, the costing system is introduced at the behest of the managing director or some other director without taking into confidence other members of the top management team. This results in opposition from various managers as they consider it interference as well as an uncalled check of their activities. They, therefore, resist the additional work involved in the cost accounting system.
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This difficulty can be overcome by taking the top management into confidence before installing the system. A sense of cost consciousness has to be instilled in their minds. b. Resistance from the Staff The existing financial accounting staff may offer resistance to the system because of a feeling of their being declared redundant under the new system. This fear can be overcome by explaining the staff that the costing system would not replace but strengthen the existing system. It will open new areas for development which will prove beneficial to them. c. Non-Cooperation at Other Levels The foreman and other supervisory staff may resent the additional paper work and may not cooperate in providing the basic data which is essential for the success of the system. This needs re-orientation and education of employees. They have to be told of the advantages that will accrue to them and to the organization as a whole on account of efficient working of the system. d. Shortage of Trained Staff Costing is a specialized job in itself. In the beginning, a qualified staff may not be available. However, this difficulty can be overcome by giving the existing staff requisite training and recruiting additional staff if required. e. Heavy Costs The costing system will involve heavy costs unless it has been suitably designed to meet specific requirements. Unnecessary sophistication and formalities should be avoided. The costing office should serve as a useful service department.

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TECHNIQUES OF COSTING
Besides the above methods of costing, following are the types of costing techniques which are used by management only for controlling costs and making some important managerial decisions. 1. Marginal Costing Marginal costing is a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, e.g., materials, labor, direct expenses and variable overheads. Fixed overheads are excluded in cases where production varies because it may give misleading results. The technique is useful in manufacturing industries with varying levels of output. 2. Direct Costing The practice of charging all direct costs to operations, processes or products and leaving all indirect costs to be written off against profits in the period in which they arise is termed as direct costing. The technique differs from marginal costing because some fixed costs can be considered as direct costs in appropriate circumstances. 3. Absorption or Full Costing The practice of charging all costs both variable and fixed to operations, products or processes is termed as absorption costing. 4. Uniform Costing A technique where standardized principles and methods of cost accounting are employed by a number of different companies and firms is termed as uniform costing. Standardization may extend to the methods of costing, accounting classification including codes, methods of defining costs and charging depreciation, methods of allocating or apportioning overheads to cost centers or cost units. The system, thus, facilitates inter- firm comparisons, establishment of realistic pricing policies, etc.
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STANDARD COSTING
Standard costing is a system under which the cost of a product is determined in advance on certain pre-determined standards. With reference to the example given in post costing, the cost of product A can be calculated in advance if one is in a position to estimate in advance the material labor and overheads that should be incurred over the product. All this requires an efficient system of cost accounting. However, this system will not be useful if a vigorous system of controlling costs and standard costs are not in force. Standard costing is becoming more and more popular nowadays.

AN OVERVIEW OF A STANDARD COSTING SYSTEM Standard costing is most suitable in operations, where activities consist of a series of common or repetitive operations. In manufacturing organisations the processes often are of a repetitive nature and therefore standard costing is relevant in these kinds of organisations. Standard costing procedures can be applied to non-manufacturing activities where operations are of a repetitive nature. However, it cannot be easily applied to activities of a non-repetitive nature, as there is no basis for observing repetitive operations and therefore standards cannot be set. In organisations that produce many different products and the production consist of series of common operations it is possible to apply a standard costing system (Drury, 1992). In a standard costing system the standard costs for the actual output for a particular period are traced to the managers of responsibility centres who are responsible for the various operations. When it comes to the actual costs for the same period they are also charged to the responsibility centres. The two costs, the standard and the actual, are then compared and the variance between the two is reported . Managers need help in order to analyse where the variances have arisen. Accountants may assist managers in doing this, but it is important they do this together with the responsible managers in order to undertake an appropriate investigation. By doing this together the reason for the variance will easily be such comparisons can only be made after an event and the usefulness of the result is questioned. However, argues that if people know in advance that their performance is going to be measured it is more likely that they will perform better
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Meaning of Standard The word standard means a benchmark or yardstick. The standard cost is a predetermined cost which determines in advance what each product or service should cost under given circumstances. In the words of Backer and Jacobsen, Standard cost is the amount the firm thinks a product or the operation of the process for a period of time should cost, based upon certain assumed conditions of efficiency, economic conditions and other factors. Definition The CIMA, has defined standard cost as a predetermined cost which is calculated from managements standards of efficient operations and the relevant necessary expenditure. They are the predetermined costs on technical estimate of material labor and overhead for a selected period of time and for a prescribed set of working conditions. In other words, a standard cost is a planned cost for a unit of product or service rendered. The technique of using standard costs for the purposes of cost control is known as standard costing. It is a system of cost accounting which is designed to find out how much should be the cost of a product under the existing conditions. The actual cost can be ascertained only when production is undertaken. The predetermined cost is compared to the actual cost and a variance between the two enables the management to take necessary corrective measures.

The Purpose Of A Standard Costing System

Information is required in order to run an organisation successfully. The purpose of cost and management accounting is to provide financial information to managers that will help them to plan activities, control the activities for which they are responsible and see the financial implications of any decisions they may take (Hussey & Hussey, 1999). Standard costing systems provide cost data that can be used for many different purposes. Ask and Ax (1997) have identified several fields of application when it comes to a standard costing system. Their survey came up with the following reasons/purposes why a company may use a standard costing system:
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Product Costing Inventory Valuation Variance Analysis Budgeting Transfer Pricing

82.4 % 64.8 % 56.0 % 45.1 % 31.9 %

The Future Of Standard Costing

According to Cheatham and Cheatham (1996) many accountants in industry (as well as academia) seem unaware of the fact that a redesigned standard costing system can provide the important information that they need, and that updating their present system is an easier process than adopting a new system. The same authors also point out that the standard costing system coordinates managerial, financial and operations accounting, this makes it a control system while many of its possible replacements only are cost accumulation systems.

Critics against the standard costing systems raise the question whether the system is really useful in the manufacturing system of today. The fact is that it is still a widely used method, due to the fact that it provides cost information for many different purposes in addition to cost control. Many organizations have adapted their variance reporting system to report on those variables particularly important to them, i.e. company specific variables. In companies where an activity-based system is implemented, standard costing is important when it comes to controlling the costs of unit-level activities. In many cases the criticism is concerned with the fact that overemphasis is on price and efficiency, which would set quality aside. Attention is also paid to the fact that volume variance to measure utilization of capacity ignores overproduction and unnecessary build-ups of inventory. In this situation the fact that variance analysis is not locked in to a particular set of variables is ignored. Used variables can be changed when the need arises. To implement standards centred on the function of raw material ordering and inventory levels, which give information about the effectiveness of suppliers. Since the goal is to have orders delivered as placed, any variances are undesired. Price variances can be combined with a quality variance, which prevents purchasing managers from just focusing on price
30

ignoring quality. Raw materials inventory variances indicate an inventory build-up, due to more material purchased than used or an inventory decrease resulted, by reverted conditions. This is in line with a just-in-time philosophy. Further criticism is concerned with the non-focus of continuous improvement. However, static standards based on engineering studies or historical data are not an essential part in a standard costing system since standards can be adjusted to be dynamic or changing, by any of several methods. Examples of this will be given below Use last periods results as standards. Important to remember when using this method is that last period has to be representative; otherwise it needs to be revised. It is also possible to use a base period with which comparisons are made. Benchmarking is a system where outside companies are used as comparison. To compare with competitors or with the leader of the industry provides motivation. Another method is to use predetermined cost reductions, which means that the standard cost is reduced for every period by a predetermined amount. This method favours constant improvement. Finally, the reporting system of the standard costing system has to be revised. In the traditional way internal competition often arises. Instead, cooperation among workers, managers and departments has to be encouraged.

Advantages Standard costing is a management control technique for every activity. It is not only useful for cost control purposes but is also helpful in production planning and policy formulation. It allows management by exception. In the light of various objectives of this system, some of the advantages of this tool are given below: 1. Efficiency measurement-- The comparison of actual costs with standard costs enables the management to evaluate performance of various cost centers. In the absence of standard costing system, actual costs of different period may be compared to measure efficiency. It is not proper to compare costs of different period because

31

circumstance of both the periods may be different. Still, a decision about base period can be made with which actual performance can be compared. 2. Finding of variance-- The performance variances are determined by comparing actual costs with standard costs. Management is able to spot out the place of inefficiencies. It can fix responsibility for deviation in performance. It is possible to take corrective measures at the earliest. A regular check on various expenditures is also ensured by standard cost system. 3. Management by exception-- The targets of different individuals are fixed if the performance is according to predetermined standards. In this case, there is nothing to worry. The attention of the management is drawn only when actual performance is less than the budgeted performance. Management by exception means that everybody is given a target to be achieved and management need not supervise each and everything. The responsibilities are fixed and every body tries to achieve his/her targets. 4. Cost control-- Every costing system aims at cost control and cost reduction. The standards are being constantly analyzed and an effort is made to improve efficiency. Whenever a variance occurs, the reasons are studied and immediate corrective measures are undertaken. The action taken in spotting weak points enables cost control system. 5. Right decisions-- It enables and provides useful information to the management in taking important decisions. For example, the problem created by inflating, rising prices. It can also be used to provide incentive plans for employees etc. 6. Eliminating inefficiencies-- The setting of standards for different elements of cost requires a detailed study of different aspects. The standards are set differently for manufacturing, administrative and selling expenses. Improved methods are used for setting these standards. The determination of manufacturing expenses will require time and motion study for labor and effective material control devices for materials. Similar studies will be needed for finding other expenses. All these studies will make it possible to eliminate inefficiencies at different steps.

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Limitations of Standard Costing 1. It cannot be used in those organizations where non-standard products are produced. If the production is undertaken according to the customer specifications, then each job will involve different amount of expenditures. 2. The process of setting standard is a difficult task, as it requires technical skills. The time and motion study is required to be undertaken for this purpose. These studies require a lot of time and money. 3. There are no inset circumstances to be considered for fixing standards. The conditions under which standards are fixed do not remain static. With the change in circumstances, if the standards are not revised the same become impracticable. 4. The fixing of responsibility is not an easy task. The variances are to be classified into controllable and uncontrollable variances. Standard costing is applicable only for controllable variances. For instance, if the industry changed the technology then the system will not be suitable. In that case, we will have to change or revise the standards. A frequent revision of standards will become costly.

Setting Standards Normally, setting up standards is based on the past experience. The total standard cost includes direct materials, direct labor and overheads. Normally, all these are fixed to some extent. The standards should be set up in a systematic way so that they are used as a tool for cost control. Various Elements which Influence the Setting of Standards

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Setting Standards for Direct Materials There are several basic principles which sought to be appreciated in setting standards for direct materials. Generally, when you want to purchase some material what are the factors you consider. If material is used for a product, it is known as direct material. On the other hand, if the material cost cannot be assigned to the manufacturing of the product, it will be called indirect material. Therefore, it involves two things:

Quality of material Price of the material

The second step in determining direct material cost will be a decision about the standard price. Materials cost will be decided in consultation with the purchase department. The cost of purchasing and store keeping of materials should also be taken into consideration. The procedure for purchase of materials, minimum and maximum levels for various materials, discount policy and means of transport are the other factors which have bearing on the materials cost price. It includes the following:

Cost of materials Ordering cost Carrying cost

The purpose should be to increase efficiency in procuring and store keeping of materials. The type of standard used-- ideal standard or expected standard-- also affects the choice of standard price.

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Setting Direct Labor Cost If you want to engage a labor force for manufacturing a product or a service for which you need to pay some amount, this is called wages. If the labor is engaged directly to produce the product, this is known as direct labor. The second largest amount of cost is of labor. The benefit derived from the workers can be assigned to a particular product or a process. If the wages paid to workers cannot be directly assigned to a particular product, these will be known as indirect wages. The time required for producing a product would be ascertained and labor should be properly graded. Different grades of workers will be paid different rates of wages. The times spent by different grades of workers for manufacturing a product should also be studied for deciding upon direct labor cost. The setting of standard for direct labor will be done basically on the following:

Standard labor time for producing Labor rate per hour

Standard labor time indicates the time taken by different categories of labor force which are as under:

Skilled labor Semi-skilled labor Unskilled labor

For setting a standard time for labor force, we normally take in to account previous experience, past performance records, test run result, work-study etc. The labor rate standard refers to the expected wage rates to be paid for different categories of workers. Past wage rates and demand and supply principle may not be a safe guide for determining standard labor rates. The anticipation of expected changes in labor rates will be an essential factor. In case there is an agreement with workers for payment of wages in the coming period, these
35

rates should be used. If a premium or bonus scheme is in operation, then anticipated extra payments should also be included. Where a piece rate system is used, standard cost will be fixed per piece. The object of fixed standard labor time and labor rate is to device maximum efficiency in the use of labor. Setting Standards of Overheads The next important element comes under overheads. The very purpose of setting standard for overheads is to minimize the total cost. Standard overhead rates are computed by dividing overhead expenses by direct labor hours or units produced. The standard overhead cost is obtained by multiplying standard overhead rate by the labor hours spent or number of units produced. The determination of overhead rate involves three things:

Determination of overheads Determination of labor hours or units manufactured Calculating overheads rate by dividing A by B

The overheads are classified into fixed overheads, variable overheads and semi-variable overheads. The fixed overheads remain the same irrespective of level of production, while variable overheads change in the proportion of production. The expenses increase or decrease with the increase or decrease in output. Semi-variable overheads are neither fixed nor variable. These overheads increase with the increase in production but the rate of increase will be less than the rate of increase in production. The division of overheads into fixed, variable and semi-variable categories will help in determining overheads. Determination of Standard Costs 1. Determination of Cost Center According to J. Betty, A cost center is a department or part of a department or an item of equipment or machinery or a person or a group of persons in respect of which costs are accumulated, and one where control can be exercised. Cost centers are necessary for determining the costs. If the whole factory is engaged in manufacturing a product, the factory
36

will be a cost center. In fact, a cost center describes the product while cost is accumulated. Cost centers enable the determination of costs and fixation of responsibility. A cost center relating to a person is called personnel cost center, and a cost center relating to products and equipments is called impersonal cost center. 2. Current Standards A current standard is a standard which is established for use over a short period of time and is related to current condition. It reflects the performance that should be attained during the current period. The period for current standard is normally one year. It is presumed that conditions of production will remain unchanged. In case there is any change in price or manufacturing condition, the standards are also revised. Current standard may be ideal standard and expected standard. 3. Ideal Standard This is the standard which represents a high level of efficiency. Ideal standard is fixed on the assumption that favorable conditions will prevail and management will be at its best. The price paid for materials will be lowest and wastes etc. will be minimum possible. The labor time for making the production will be minimum and rates of wages will also be low. The overheads expenses are also set with maximum efficiency in mind. All the conditions, both internal and external, should be favorable and only then ideal standard will be achieved. Ideal standard is fixed on the assumption of those conditions which may rarely exist. This standard is not practicable and may not be achieved. Though this standard may not be achieved, even then an effort is made. The deviation between targets and actual performance is ignorable. In practice, ideal standard has an adverse effect on the employees. 4. Basic Standards A basic standard may be defined as a standard which is established for use for an indefinite period which may a long period. Basic standard is established for a long period and is not adjusted to the preset conations. The same standard remains in force for a long period.
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These standards are revised only on the changes in specification of material and technology productions. It is indeed just like a number against which subsequent process changes can be measured. Basic standard enables the measurement of changes in costs. The deviation between standard cost and actual cost cannot be used as a yardstick for measuring efficiency. 5. Normal Standards As per terminology, normal standard has been defined as a standard which, it is anticipated, can be attained over a future period of time, preferably long enough to cover one trade cycle. This standard is based on the conditions which will cover a future period of five years, concerning one trade cycle. If a normal cycle of ups and downs in sales and production is 10 years, then standard will be set on average sales and production which will cover all the years. The standard attempts to cover variance in the production from one time to another time. An average is taken from the periods of recession and depression. The normal standard concept is theoretical and cannot be used for cost control purpose. Normal standard can be properly applied for absorption of overhead cost over a long period of time. 6. Organization for Standard Costing The success of standard costing system will depend upon the setting up of proper standards. For the purpose of setting standards, a person or a committee should be given this job. In a big concern, a standard costing committee is formed for this purpose. The committee includes production manager, purchase manager, sales manager, personnel manager, chief engineer and cost accountant. The cost accountant acts as a co-coordinator of this committee. 7. Accounting System Classification of accounts is necessary to meet the required purpose, i.e. function, asset or revenue item. Codes can be used to have a speedy collection of accounts. A standard is a pre-determined measure of material, labor and overheads. It may be expressed in quality and its monetary measurements in standard costs.

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THE PROCESS OF STANDARD COSTING

Standard costs are pre-determined by using a careful analysis of production methods, physical conditions and price factors. They represent achievable targets and help to build up budgets, gauge performance and obtain product costs. The actual costs will vary from month to month or even from day to day. The basic objective, therefore, of standard costing system is to assist the departmental head by identifying and describing the variances over which he has control. Thus, a set of standards developed under the standard costing system outlines how a task must be accomplished and how much it should cost. As work is done actual costs are recorded and compared with standard cost to determine the

VARIANCES The variances, thus arrived at, are analyzed further with a view to discovering better ways of adhering to standards or of altering the standards so as to accomplish the objectives. Under this system, the cost is pre-determined for each element, namely, material, labour and overhead and for each line of product manufactured or service rendered. It, therefore, involves: (a) The setting of standards, (b) Ascertainment of actual costs, (c) Comparison of actual and standard costs to determine the variance, and (d) Investigation of variances and taking appropriate action thereon wherever necessary.

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TYPES OF VARIANCES

Controllable and un-controllable variances:

The purpose of the standard costing reports is to investigate the reasons for significant variances so as to identify the problems and take corrective action. Variances are broadly of two types, namely, controllable and uncontrollable. Controllable variances are those which can be controlled by the departmental heads whereas uncontrollable variances are those which are beyond their control. For example, price variance is normally regarded as uncontrollable if the price increase is due to fluctuations of prices in the market. It becomes controllable if the production controller has failed to place orders in time and urgent purchase was made at extra cost. In the former case, no responsibility is attached to any one whereas the departmental head has responsibility for the loss in the latter case. As already explained, not all price variances are uncontrollable. If the uncontrollable variances are of significant nature and are persistent, the standard may need revision.

Computation of variances: Let us now proceed to study with illustrations the method of computation of major variances. In all the problems illustrated in the following pages, F means favourable variance and A means adverse variance. Variances may be broadly classified under the following heads according to the main type of cost. The categorization of variances is depicted

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(a) Material The two basic variances arising during material consumption are material usage and material price variances. The former arises because of variations in the quantity of material actually consumed when compared with what should have been consumed as per the established standards and the latter because of the differences between the planned and the actual material prices paid to the suppliers. Mathematically

(i)Material costs variance =

(Standard quantity x Standard Price) (Actual quantity x Actual price)

MCV = (S SP) (A AP)

(ii) Material price variance= Actual quantity (Standard price Actual price) MPV = A (SP AP)

(iii) Material usage variance = Standard price (Standard quantity Actual quantity) MUV = SP (S A )

Where Revised standard quantity =Total of actual quantities of all materials Total of standard quantitiets of all materials Standard quantity of one material _Material revised usage variance = (Standard quantity Revised standard quantity) Standard price MRUV = (S RS ) SP (ii) Material yield variance = (Actual yield Standard yield) Standard output price MYV = (AY SY) SOP

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Note: Material revised usage variance is also known as material sub usage variance. In each case there will be only one variance either material yield or material revised usage variance.

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43

COMPANY PROFILE

Upkar Agencies has been incorporated in 1989. It started as a small trading firm and then grew tremendously by expanding itself in various building materials. Some of these including pvc pipes and fittings ,cement, water storage tanks ,suctions ,cement sheet etc. Over the years, company has built up a very strong network, because of which it ensured timely supply of inventory across the length and breadth of its market. Through its quality and commitment it has succeeded in creating a high level of customer satisfaction which has helped the company in gaining a respectable position in the market. In 2011,Upkar Group started with its new division UPKAR POLYMERS for the manufacturing of water storage tanks . It has procured recognition in the manufacturing, sales ,marketing industry under the brand name 'UPKAR'. Upkar polymers manufacturing facilities are well equipped with high tech, and state of the art roto-moulding machines. This has enabled the companys product range to be at par with international quality and superior finish. UPKAR range of water storage tanks are manufactured to the highest quality standards and have stood the test of time with tanks in the field for over years.

Upkar Group has always placed high emphasis on its marketing efforts. Our Main Office is located in Sagar (MP). The company has steadily grown into a large entity having strong network of 50+ dealers across Indore, Bhopal, Jabalpur, Katni, Sagar, Damoh, Tikamgarh, Bina ,Raisen ,vidisha ,chattarpur district.

In the upcoming years, UPKAR aims to show its presence in the major cities of India. And soon we are going to launch a new range products that will include PVC Pipes and Fittings , tubing pipe , Ghamela, which will satisfy every need of our discerning customers.

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UPKAR POLYMERS Plant Capacity: The production basis for a typical tiny unit would be as under: Working hours/day : 12 (1 shift) Working days in a month : 30 Monthly Production capacity : 500 ltrs. Tank : 1800 pcs.

The unit has been assumed to operate at 70%, 80% and 90% of its installed capacity in the first, second and third year and onwards of its operation.

Raw Material: The main raw materials required for manufacturing water storage tank are LDPE/LLDPE/HDPE, Master batch (carbon black and other colorants), hinges and inserts.

Process of Manufacture: 1) The LLDPE granules are mixed with granules of black colour concentrates. 2) These are extruded and strands are chopped as granules so as to achieve uniform distribution of carbon black. 3) The granules are pulverized in a special pulverization system from 30 to 40- mesh powder. 4) The rotational moulding process for manufacturing water storage tank consists of the following major process steps: Loading of raw material Moulding of the part Cooling or curing Unloading of finished part
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Cycle time generally varies from 15 to 20 minutes. Cycle as low as 10 minutes can be achieved and extremely large part with heavy wall requires 20 minutes for each moulding cycle. Tanks are generally made of up of doube layer or triple layer. According to no. of layer for a finished product it will take 40-55 minutes for each arm which has 4 moulds mounted on it.

MAJOR PROCESS STEPS:

Loading: Raw material in the form of powder (35 to 40 micron) or liquid state, is loaded into the mould or cavities and mould halves are mechanically locked together. Loading is generally accomplished before the machine has completed its previous cycle and ready to accept the mould.

Moulding the part: The prepared mould is next placed in a closed chamber where it is subjected to intense heat upto 400 C while rotating the mould bi-axially. Rotation is at low speed generally in the range of 1 40 rpm on the minor axis and 1 12 rpm on the major axis. A 4:1 rotation is common however both variable speeds and variable ratios are used for moulding unusual configuration.

Cooling : The mould containing formed part is then transferred to a second enclosed chamber where it is subjected to a combination of water spray and forced air cooling while continuing to rotate biaxial. This causes the part to cure evenly and mould to reach handling temperature.

Unloading: Like loading this can be accomplished manually by simply opening the mould and physically removing the parts or automatically by using forced air to facilitate the ejection of the part.

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PLANT LAYOUT

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48

Estimated Standard Cost in Rs. Capacity : ------1800 units of 500 ltrs tanks (per month)

Description

Total Cost

Total Fixed Cost

Total Variable Cost

Fixed Cost Per Unit

Variable Cost Per Unit

Total Cost Per Unit

Bill of Material Cost LLDPE(21600 in kg) Color granules (450 kg) Fuel DIESEL(ltrs) Direct Labour Screening & lids Manufacturing overheads Marketing and administrative overheads Total cost per unit Add desired profit( Desired selling price/unit

2052000

2052000

1140

1140

51750 135450 39600 97200 214750 65000 88550 30000

51750 135450 39600 97200 126200 35000 49.14 16.67

28.75 75.25 22 54 70.11 19.44

28.75 75.25 22 54 119.25 36.11

65.81

1409.55 15%

1475.36 15% 1700

Standard Cost of 500 ltrs water storage tanks Rs.1700/unit (or rs 3.40/ltr)

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ACTUAL COST SHEET Production of 500ltrs water storage tank Actual production 70% of capacity 1260 units Total cost 1. Direct material Opening Stock of Raw material ADD: Material purchased during the period(16MT) ADD :Material parchased (315kg) LESS: Closing stock at the end (880 kg) 2.Direct wages 3.Direct expenses (1+2+3)Prime Cost 4.Work Expenses ADD :Indirect wages ,power ,maintenance of plant ,rent , Lighting & Insurance of Factory ,Depreciation of plant & Building etc Less :sale of scrap 5.ADD : Opening work-in-progress 6.LESS: Closing work-in-progress (prime cost +4+5-6)Work Cost 7.Administrative Expenses Office salaries ,rent ,lighting ,insurance ,depreciation Directors fees , audit fees (work cost + 7)Cost Of Production 8.Opening stock of finished goods
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Cost /unit

1504000 37800 -82720 31500 68040 1520820 151200

1193.65 30 -65.6 25 54 1237 120

1357 1,15,523 91.68

1448.68

9.Closing stock of finished goods (cost of production+8-9)Cost of goods sold 10.Selling & Distribution exp. Carraige outwards ,commission ,advertisement ,bad debt.. (cost of goods sold+10)Cost of Sales ADD:Profit @15% Sales (Selling Price) 1506.22 225.93 1732 72520 57.54

Actual cost for 500ltr water storage tank Rs 1732/unit (3.46/ltr)

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VARIANCE

The concerns of UPKAR POLYMERS furnish the following information:

BASIC CALCULATION STANDARD FOR 1800 units Material used(kg) Rate(rs) Amount (rs) Material used(kg) Actual for 1260 units Rate Amount

A B

21600 450

1140 115

2052000 51750 2103750

15120 315

1128 120

1421280 37800 1459080

MATERIAL VARIANCE

Material usage variance, Material price variance, Material cost variance. Std. cost of actual output = Rs.2103750 (1260/1800) = Rs. 1472625.00

Calculation of Variances = (SC of actual output AC) = (1472625.00 1459080.00) MCV = Rs.13545 (F)

1. Material Cost Variance

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2. Material Price Variance Material A Material B

= (SP AP) A = (1140 1128) 15120 = (115 120) 315 = Rs.181440.00 (F) = Rs. 1575.00 (A) MPV = Rs. 179865.00 (F)

3. Material Usage Variance = (S for actual output A ) SP Material A = (21600*(1800/1260)-15120)*1140 Material B = (450*(1800/1260)-315)*115 =Rs. 17940343.00(F) =Rs. 37703.57 (F)

MUV= Rs.17678047 (F)

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LABOUR VARIANCE Labour Similar to material usage variance, labour efficiency variance measures the efficiency of labour by identifying the difference between the actual hours worked and the hours which should have been worked as per the established standards.

Mathematically Labour Cost variance = (Std. hours for actual output x Std. rate per hour) (Actual hours x Actual rate per hour) LCV = (SH x SR) (AH x AR)

Labour rate variance = Actual time (Std. rate Actual rate) LRV = AH x (SR AR)

Labour efficiency (or time) variance = Std. rate (Std. hours for actual output Actual hours) LEV = SR x (SH AH)

Classification of Labour Efficiency Variance Labour efficiency variance is further divided into the following variances: (i) Idle time variance (ii) Labour mix variance (iii) Labour yield variance (or Labour revised-efficiency variance) (i) Idle time variance= Idle hours x Standard rate ITV = IH x SR (ii) Labour mix variance = (Revised std. hours Actual hours) x Standard rate LMV = (RSH AH) x SR Labour revised efficiency variance = (Std. hours for actual output Revised std. hours) x Standard rate LREV = (SH RSH) x SR (iii) Labour yield variance =
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(Actual yield Std. yield from actual input) x Std. labour cost per unit of output LYV = (AY SY) x SLC

The standard and actual figures of the company are as under Standard time for the job Standard rate per hour Actual time taken Actual wages paid 252 hours Rs. 110 258 hours Rs. 31500

(a) Std. labour cost (252 hours Re. 110) (b) Actual wages paid (c) Actual rate per hour: Rs. 31500/258 hours

Rs. 27720 31500 122

(i) Labour Rate variance

= Actual time (Std. rate Actual rate)

= 252 hours (Re.110 Re.122) = Rs. 3054 (A) (ii) Labour Efficiency variance = Std. rate per hr. (Std. time Actual time) = Re.110 (252 hrs. 258 hrs.) = Rs.660 (A) (iii) Total labour cost variance = Std. labour cost Actual labour cost =Rs 27720 Rs 31500 = Rs 3780 (A)

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OVERHEADS

Normally, for several type of overhead expenses either a single recovery rate or two recovery rates, one representing fixed overheads and the other representing variable overheads, will be prepared. Refer to the Estimated Standard Cost

Overheads have been classified as both fixed and variable thereby giving a standard fixed cost (overhead) per unit and standard variable cost (overhead) per unit. The recovery of the fixed components of the estimated overheads depends upon capacity utilization.

In case a company produces less than the projected utilization it shall not be able to recover all the budgeted fixed overheads. This unrecovered portion is known as production volume variance.

The other variation is because of variations in actual spending when compared with both estimated fixed and estimated variable overheads. Such a variance is known as Overhead expenses variance.

The following detailed discussion shall help you have a clear understanding of these two variances. (1) Production Volume Variance: The term fixed overheads implies that the element of cost does not vary directly in proportion to the output. In other words fixed overheads do not change within a given range of activity. However the unit cost changes even though the fixed overheads are constant in total within the given range of output. So, higher the level of activity, the lower will be the unit cost or vice -versa. The management is, therefore, faced with a costing difficulty because it requires a representative rate for charging fixed overheads irrespective of changes in volume of output.

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For example, if the fixed overheads are Rs. 10,000 and the output varies from 8,000 to 11,000 units, the cost per unit of output would be as under :

Fixed Output in Cost per

Overheads (Rs.) 10,000 10,000 10,000 10,000

units 8,000 9,000 10,000 11,000

unit of output (Rs.) 1.25 1.11 1.00 0.91

We have, however, seen that in standard costing, a predetermined rate of overhead recovery is established for costing purposes. This involves the establishment of a predetermine capacity. If we take, for example; 10,000 units as predetermine volume/capacity, the predetermined rate will be Re.1 per unit. If the factory produces only 8,000 units, there will be a loss due to under-recovery which can be explained in two-ways:

(a) The actual cost will be Rs. 10,000/ 8,000 units = Rs. 1.25 per unit whereas the absorbed cost is Re. 1 per hour. Since the cost is more by Re. 0.25 per unit, the total loss is 8,000 units Re. 0.25 or Rs. 2,000.

(b) Since the factory has produced only 8,000 units, the amount of overheads recovered is 8,000 units Re.1 or Rs. 8,000. Since fixed overheads are constant, the amount which should have been ideally incurred for the department is Rs.10,000. Hence there is a difference of Rs 2,000 between the overheads recovered and the overheads estimated. This variance is known as production volume variance. This shows the cost of failure on the part of the factory to produce at the planned activity of 10,000 units. If the company produces 11,000 units, the variance will show the benefits of operating at a level above the budgeted activity. If, however, the factory has produced 10,000 units, there will be no production volume variance because the actual activity equals what was budgeted i.e. the production of 10,000 units.
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(2) Overhead Expenses Variance : As discussed above, the Production Volume Variance analyses the unrecovered fixed overheads. Apart from this, there can be variations in the actual spending of both fixed and variable overheads when compared to what was established as a standard. Such variations can be accounted for by analyzing a Overhead expenses variance. The following illustration shows how overhead expense rates are computed and variance analysed. The analysis of overhead variances is different from that of material and labour variances. As overhead is the aggregate of indirect materials, indirect labour and indirect expenses, this variance is considered to be a difficult part of variance analysis. It is important to understand that overhead variance is nothing but under or over-absorption of overhead. There is a separate computation for overhead variances for fixed and variable overheads. Basic terms used in the computation of overhead variance

Standard overhead rate (per hour) = Budgeted overhead Budgeted hours Or Standard overhead rate (per unit) = (Budgeted Overhead / Budgeted output in units)

Note: Separate overhead rates will be computed for fixed and variable overheads.

Basic calculations before the computation of overhead variances: The following basic calculation should be made before computing variances. (i) When overhead rate per hour is used: (a) Standard hours for actual output (SHAO) SHAO =( Budgeted hours Actual output) / Budgeted output (b) Absorbed (or Recovered) overhead = Std. hours for actual output Std. overhead rate per hour (c) Standard overhead = Actual hours Std. overhead rate per hour
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(d) Budgeted overhead = Budgeted hours Std. overhead rate per hour (e) Actual overhead = (Actual hours Actual overhead rate per hour)

(ii) When overhead rate per unit is used

(a) Standard output for actual hours (SOAH) SOAH = (Budgeted output (in units) Actual hours)/ Budgeted hours (b) Absorbed overhead = Actual output Std. overhead rate per unit (c) Standard overhead = Std. output for actual time Std. overhead rate per unit (d) Budgeted overhead = Budgeted output Std. overhead rate per unit (e) Actual overhead = Actual output Actual overhead rate per unit Overhead cost variance = Absorbed overhead Actual overhead OCV = (Std. hours for actual output Std. overhead rate) Actual overhead

Overhead cost variance is divided into two categories: (i) Variable overhead (VO) variances (ii) Fixed overhead (FO) variances

Variable Overhead (VO) Variances V. O. cost variance = (Absorbed variable overhead Actual variable overhead) = (Std. hours for actual output Std. variable overhead Rate) Actual overhead cost This variance is sub-divided into the following two variances: (a) Variable overhead expenditure variance or spending variance or budget variance (b) Variable overhead efficiency variance V. O. expenditure variance = (Standard variable overhead Actual variable overhead) = (Actual hours Std. variable overhead rate) Actual overhead cost V.O. efficiency variance = (Absorbed variable overhead Standard variable overhead) = (Std. hours for actual output Actual hours) Std. variable overhead rate

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CALCULATIONS :

Company has established the following standards for factory overheads.

Variable overhead per unit: Fixed overheads per month Capacity of the plant. The actual data for the month are as follows: Actual overheads incurred Actual output (units)

Rs. 89.55/Rs. 1,18,550/1800 units per month.

Rs. 1,88,043/1260 units

Required: Calculate overhead variances viz : (i) Production volume variance (ii) Overhead expense variance Solution: Unutilised capacity : 1800 units less 1260 units = 540 units Standard fixed overheads per unit Production volume variance = Rs. 65.86 per unit = 540 units Rs. 65.86 = Rs. 35,564.5 (Adverse) Std variable overheads for actual production : Rs. 89.55 1260 units = Rs. 1,12,833 Std fixed overheads Total overheads on standards for actual production Actual overheads incurred Overhead expense variance = Rs. 118550 = Rs. 231383 = Rs. 1,88,043 = Rs. 43,340

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The following information was obtained from the records of a manufacturing unit using standard costing system. Standard Production Working days Fixed Overhead Variable Overhead 1800 units 30 Rs.118550 Rs 161200 Actual 1260 units 21.5 Rs. 98,000 Rs 90,043

You are required to calculate the following overhead variance: (a) Variable overhead variance (b) Fixed overhead variances (i) Expenditure variances (ii) Volume variance Solution: (a) For Variable Overhead Variance: Actual variable overhead = Rs.90, 043 Standard variable overhead for production (Budgeted output Std. variable overhead rate per unit) = (161200/ 1800) 1260 = Rs.112,840 Variable overhead variance: Actual variable overhead Standard variable overhead = Rs.112840 Rs.90043 = 22797 (A) (b) For Fixed Overhead Variance: Actual fixed overhead incurred = Rs. 98000 Budgeted fixed overhead for the period = Rs. 118550 Standard fixed overhead for production (Standard output for actual time Standard Fixed Overhead per unit) = (Rs.118550/ 1800 units) 1260 units
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= Rs.82,985 Variances: (i) Fixed Overhead Expenditure Variances: Actual fixed overhead Budgeted fixed overhead = Rs.98000 Rs.118550 = 20,550 (ii) Fixed Overhead Volume Variance : Budgeted fixed overhead Standard fixed overhead = Rs.118550 Rs.82,985 = Rs.35565 (A) (iii) Fixed Overhead Variance : Actual fixed overhead Standard fixed overhead = Rs.98000 Rs.82985 = Rs.15, 015 (F)

Sales variances : Variances which arise due to a change in the actual selling price and the actual quantity of units sold from that what was budgeted are known as sales variances. These variances are computed on the basis of sales value. They provide the sales manager an idea of the effect of various factors affecting sales such as prices, quantity and sales mix on the overall sales value. The sales value variances are more or less similar to material cost variances or labour cost variances. Sales value variance: It is the difference between the budgeted sales and actual sales. The variance can be bifurcated into sales price variance and sales volume variance. (a) Sales price variance : Actual quantity of Sales (Actual price Budgeted price) or Actual sales minus actual quantity at budgeted prices. (b) Sales volume variances: Budgeted price (Actual quantity Budgeted quantity) or Actual quantity at budgeted price minus budgeted sales.

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Computation the sales variances from the following figures :-

Product

Budget Quantity

Quantity Budgeted Price Rs.

Actual Quantity Rs. 1260

Actual Price

Upkar tank

1800

1700

1732

Solution Basic Calculation : Product price Budgeted price Actual price Budgeted Quantity sales Actual Quantity sales Budgeted sales Actual Sales at Budgeted price a
Upkar tank 1700

Actual sales

b 1732

c 1800

d 1260

e = a*c 3060000

f = (a*d) 2142000

g = (b*d) 2182320

Computation of Variances Sales price variance = Actual quantity (Actual price Budgeted price) = Actual sales Standard sales = Rs. 2182320 Rs. 2142000 = Rs. 40320(F) Sales volume variance = Budgeted price (Actual quantity Budgeted quantity) = Std. sales Budgeted sales = Rs. 26,000 Rs. 25,000 = Rs. 1,000 (F) Total variance = Actual sales Budgeted sales = Rs. 2182320 Rs. 3060000 = Rs.877680 (A)

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SUMMARY

Standard Costing: A technique which uses standards for costs and revenues for the purposes of control through variance analysis. Standard Price: A predetermined price fixed on the basis of a specification of a product or service and of all factors affecting that price. Standard Time: The total time in which task should be completed at standard performance. Variance: A divergence from the predetermined rates, expressed ultimately in money value, generally used in standard costing and budgetary control systems. Variance Analysis: The analysis of variances arising in standard costing system into their constituent parts. Revision Variance: It is the difference between the original standard cost and the revised standard cost of actual production. Basic Standard: A standard fixed for a fairly long period. Current Standard: A standard fixed for a short period. Estimated Cost : An estimate of what the cost is likely to be during a given period of time. Ideal Cost : A cost which should be incurred during a period under ideal conditions.

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Important Formulas

Material Variance : Material costs variance = (Std. qty x Std. Price) (Actual qty x Actual price) Material usage variance = Std. price (Std. Qty. Acutal qty.) Material price variance = Actual qty. (Std. price Actual price) Material cost variance = Material usage variance + Material price variance

Labour Variance : Labour cost variance = (Std. time x Std. Rate) (Actual time x Actual rate

Labour efficiency variance = Std. rate (Std. time Actual time) Labour rate variance Labour cost variance = Actual time (Std. rate Actual rate) = Labour efficiency variance + Labour rate variance

Fixed Overhead Variances: F.O. cost Variance = Recovered Overhead Actual Overhead F.O. Expenditure Variance = Budgeted Overhead Actual Overhead F.O. Volume Variance = Recovered Overhead Budgeted Overhead Variable Overhead Variances V.O. Cost variance = Recovered Overhead Actual Overhead V.O. Expenditure Variance = Standard Overhead Actual Overhead V.O. Efficiency Variance = Recovered Overhead Standard Overhead

Sales Variance : Sales price variance: Actual quantity of Sales (Actual price Budgeted price) Sales volume variances: Budgeted price (Actual quantity Budgeted quantity)

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CASE STUDY

STANDARD COSTING AT GLOBAL COMMUNICATION LTD. 8.9.1 About Global Communications : Global Communication Ltd. (GCL), manufacturers of Telephone Exchanges, had been incorporated in the early 90s and has since grown rapidly. Today it is considered as one of the largest Telecom Company in the country. Till only a few months back, being the only manufacturer of such products, GCL was enjoying monopoly and huge Gross Profit Margins to its credit. Costing was hence not thought to be important, except to facilitate statutory Financial Audits. However, the Telecom revolution changed the scenario in no time, with more business houses venturing into Exchange production. Sensing competition, the management had been quick to hire the services of Mr. Ravi Shankar in order to help implement a relevant Costing System for its plant located at Kanpur. The system was to be such, so as to fulfil the requirements of Material and Expenses Control, facilitate Statutory Audit, help in Pricing Decisions and provide for the day-to-day requirements of Excise, etc. Since the variable cost component within the production process was quite high a Standard Costing System was thought off to be most appropriate. The Manufacturing Process GCL manufactures two types of Exchanges, viz. 1. Exch 007 2. Exch 009 Both the Exchanges are produced on separate Production Lines; however, the process of manufacture is strikingly similar. Raw Material Cost comprises about 75% of the total Product Cost and is the only identifiable Variable Cost. Production is carried out by two departments Assembly and Testing. Raw material is issued in lots for 100 units of Finished Goods to the Assembly department. Various electronic components are inserted into the Printed Circuit Boards (PCBs) over here. About 40% of the insertions done by the Assembly department are automated, the rest being done by hand. The inserted components are then soldered manually. PCBs are plate shaped metallic sheets having tracks over the surface. These tracks facilitate the electronic connectivity between various components inserted at different parts of the sheets.
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Thirty-six such populated PCBs are finally assembled in a Rack, which is transferred to the Testing department for quality check and approval. If found OK, the production is said to be complete. In case there is any wastage on the floor (either in Testing or Assembly departments), the material is replaced by the stores on receipt of a replacement slip duly signed by the Assembly or Testing departments supervisor. The defective component so replaced is handed back to the stores. However there are no records maintained for such scrap generated, as it does not carry any significant economic value. The mechanics of the system as explained by Ravi :In due course, the system was designed and presented in a meeting attended by almost all senior personnels of the Factory. Ravi used an OHP to present a few slides, which have been shown as Exhibits below. The mechanics of the system was described by Ravi as follows: A spread sheet for the components of cost for each of the 1800 Raw Materials shall be drawn as shown in Exhibit 1. A standard amount for each of these components of cost for every single raw material these estimated cost components shall give Standard Cost of each individual Raw Material and would serve as an input for the estimated Raw Material cost (also known as BOM cost i.e., Bill of Material cost) in the Standard Cost Sheet. There shall be two cost sheets pertaining to the two exchanges being manufactured in the factory. The cost sheets shall be drawn on the capacity available to the company and not the budgeted production since the Company has frequently produced to capacity, especially when nearing the close of the three previous financial years. Hence, projections of overheads shall be done as if GCL would be attaining 100% capacity utilization. The Bill of Material shall be extended to incorporate other columns as shown in Exhibit 2. This extended version of the BOM shall be known as Direct Material Control Statement (DMCS) and shall be used to calculate net usage and net price variances. Two such statements would be prepared, one each for the two Exchanges. The usage and price variances shall be calculated by using the rejection slips generated in the production department/lines for identifying actual consumption (in quantity) of raw material during a
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particular month. Since the Rejection Slips shall bear the production lot nos., the quantity of raw material identified in them shall need to be added to the quantity estimated to be consumed for that particular production lot no. actual price of each of the raw material consumed shall be provided by the accounts department and shall be inserted manually in column No.7 of the DMCS. Standard overheads on actual production for each of the two exchanges shall be arrived at with the help of the projected figures of the respective Cost Sheets (Exhibit 3). Such standard overheads on actual production shall be compared with the factory trial balance in order to arrive at the overhead expense variance. Standard fixed cost per unit as projected by the two cost sheets shall be utilized to calculate the production volume variance. The sales price variance shall reflect the difference between the actual and the standard selling price on actual sales. Finally, adding all these five variances to the standard profit (The difference between the estimated standard selling price and the estimated cost per unit of each of the two exchanges) shall help arrive at the actual profit shall have to be established in the beginning of the financial year. The sum total of all This profit shall then be reconciled with the financial accounting profit as shown by the accounts department. The reporting pattern shall be as shown below. Period of reporting Type of report Daily Production volume variance and daily standard profit based on daily production. Monthly Statement of profit and loss based on standard profit adjusted with the above mentioned five variances. Reconciliation of the costing profit with the financial accounting profit. Direct material control statement incorporating usage and material price variances

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The Proposed System: A Critical Appraisal The presentation being over, the dais was thrown open to suggestions. The system was appreciated by one and all; however the following suggestions were made by the various functional managers. Purchase cost to be loaded over, as a percentage of the raw material cost shall not help arrive at the exact incidence of cost. According to the production manager, in case I buy a Re. 1/- resistor and a Rs. 5000/- IC from the same vendor at the same time, will it not be wrong to consider different production overhead burden on the two concerned components? The mechanics of calculating the actual quantity of raw material consumed may not give accurate results. Opined the finance manager in case I use the rejection slips to understand the extra material consumed, I shall not be sure of the exact figures. This shall necessitate the need of scrap accounting, which at present does not exist. The purchase manager was sceptical about the mechanics of calculating the raw material purchase price variance. In case the usage variance is abnormal, a small adverse variance in the purchase price shall be blown out of proportion. The accounts manager highlighted the need of an integrated accounting system rather than the proposed use of the accounting trial balance as it existed on date, without production accounting the control of material is difficult. Year after year we are having problems reconciling purchases with the stock. Since it is difficult to physically identify the WIP every month end, the only alternative left is an integrated accounting system with an efficient cycle count (perpetual inventory check) Questions 1. The raw material price variance is calculated on the actual quantity of raw material consumed? Suggest a modification to satisfy the concerns raised by the purchase manager. 2. How could an integrated accounting system be of help?

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Standard Costing and Variance Analysis Case Study: 1. Case A: Effect of assumed standard levels 2. Case B: Factory overhead variance analysis Case A: Effect of Assumed Standard Levels: Harden Company has experienced increased production costs. The primary area of concern identified by management is direct labor. The company is considering adopting a standard cost system to help control labor and other costs. Useful historical data are not available because detailed production records have not been maintained. To establish labor standards, Harden Company has retained an engineering consulting firm. After a complete study of the work process, the consultants recommended a labor standard of one unit of production every 30 minutes, or 16 units per day for each worker. The consultants further advised that Harden's wage rates were below the prevailing rate of $ per hour. Harden's production vice-president thought that this labor standard was too tight, and from experience with the labor force, believed that a labor standard of 40 minutes per unit or 12 units per day for each worker would be more reasonable. The president of Harden Company believed the standard should be set at a high level to motivate the workers and to provide adequate information for control and reasonable cost comparison. After much discussion, management decided to use a dual standard. The labor standard of one unit every 30 minutes, recommended by the consulting firm, would be employed in the plant as a motivation device, while a cost standard of 40 minutes per unit would be used in reporting. Management also concluded that the workers would not be informed of the cost standard used for reporting purposes. The production vice-president conducted several sessions prior to implementation in the plant, informing the workers of the new standard cost system and answering questions. The new standards were not related to incentive pay but were introduced when wages were increased to $7 per hour. The standard cost system was implemented on January 1, 19--. At the end of six months of operation, these statistics on labor performance were presented to executive management:

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JanuaryFebruaryMarch April Production (units) Direct labor hours Quantity Variances: Variance based on labor standard (one unit each 30 minutes) Variance based on cost standard (one unit each $2,800 40 minutes) F $3,033 F $1,633 F -0$3150 $2,800 $3,850 U* U U 5,100 3,000 5,000 2,900 4,700 4,500 2,900 3,000

May

June

4,300 4,400 3,000 3,100

$5,950 $6,300 $5,250U U U

$1,167 $933U U

*U = Unfavorable; F = Favorable Materials quality, labor mix, and plant facilities and conditions have not changed to any great extent during the six month period. Required: 1. A discussion of the impact of different types of standards on motivations, and specifically the likely effect on motivation of adopting the labor standard recommended for Harden Company by the engineering firm. 2. An evaluation of Harden Company's decision to employ dual standards in its standard cost system. Answer: 1. Standards are often classified into three types - theoretical (tight), normal (reasonable), or expected actual (loose). Standards which are too loose or too tight will generally have a negative impact on workers motivation. If too loose, workers will tend to set their goals at this low rate, thus reducing productivity below what is obtainable; if too tight, workers will realize that it is impossible to attain the standard, become frustrated, and will not attempt to meet the standard. An attainable or reasonable standard which can be achieved under normal
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working conditions is likely to contribute to the worker's motivation to achieve the designated level of activity.

If executive management imposes standards, workers and plant management will tend to react negatively because they feel threatened. If workers and plant management participate in setting the standard, they can more readily identify with it and it could become one of their personal goals.

In Harden's case, it appears that the standard was imposed on the workers by management. In addition, management used an ideal standard to measure performance. Both of these actions appear to have had a negative impact on output over the first six months. Harden made a poor decision to use dual standards. If the workers learn of the dual standards, the company's entire measurement system may may become suspect and credibility will be lost. Company morale could suffer because the workers would not know for sure how the company evaluates their performance. as a result, disregard for the present and any future cost control system may develop. Case B: Factory Overhead Variance Analysis: Strayer Company uses a standard cost system and budgets the following sales and costs for 19-Unit sales Sales Total production cost at standard Gross profit Beginning inventories Ending inventories 20,000 $2,00,000 130,000 70,000 None None

The 19-- budgeted sales level was the normal capacity level used in calculating the factory overhead predetermined standard cost rate per direct labor hour.
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At the end of 19--, Strayer Company reported production and sales of 19,200 units. Total factory overhead incurred was exactly equal to budgeted factory overhead for the year and there was underapplied total factory overhead of $2,000 at December 31. Factory overhead is applied to the work in process inventory on the basis of standard direct labor hours allowed for units produced. Although there was a favorable labor efficiency variance, there was neither a labor rate variance nor materials variances for the year. Require: An explanation of the under-applied factory overhead of $2,000, being as specific as the data permit and indicating the overhead variances affected. Strayer uses a three variance method to analyze the total factory overhead. Answer: Under-applied factory overhead will arise when actual factory overhead incurred is larger than the standard amount of factory overhead applied to work in process. The standard amount of factory overhead applied to work in process is based on actual rather than on budgeted units of output. Based on the information given, the sum of the factory overhead spending, efficiency, and idle capacity variances resulted in an unfavorable total factory overhead variance of $2,000. The factory overhead efficiency variance must be favorable because it is computed on the same basis as the direct labor efficiency variance which was given as favorable. Strayer would have an unfavorable idle capacity variance because the actual activity level for the year was less than the capacity level used in calculating the standard cost rate for factory overhead. As to the factory overhead spending variance, the balance would be unfavorable because actual costs would have had to exceed the budgeted cost of the actual units produced since the budget allowance for production of 19,200 units must be less than for 20,000 units and the actual costs were exactly equal to the budget allowance for 20,000 units. The magnitude of the spending variance is indeterminate from the information given.

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REFRENCES

Arthur Hindmarch and Marry Simpsons (1991) Financial accounting.

Janet Brammer , David Cox ,Michael Fardon ,Aubrey Penning (2002) Active Accounting

Cost Accounting Vol1 The Institute Of Chartered Accountants Of India

Cost Accounting Vol 2 The Institute Of Chartered Accountants Of India

The Standard Costing System At SKF: A Case Study Of A Swedish Manufacturing Company

LINKS: http://www.mccc.edu/~horowitk/documents/VanDerbeck15e_

www.accountingformanagement.com/standard_costing_variance_analysis_case_study

http://www.globusz.com/ebooks/Costing/00000011.htm

http://www.nos.org/srsec320newe/320el29a.pdf

http://www.globusz.com/ebooks/Costing/00000010.htm

http://www.slideshare.net/hemanthcrpatna/a-study-on-formulation-of-costing-system

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