1) Standard Costing A standard cost system assigns standard, or planned, costs to units produced. The standard cost of producing one unit of output is based on the standard cost for one unit of each of the inputs required to produce that output unit, with each input multiplied by the number of units of that input allowed for one unit of output. The inputs include direct materials, direct labor and allocated overhead. The standard cost is what the cost should be for that unit of output. In a standard cost system, direct materials and direct labor are applied to production by multiplying the standard price or rate per unit of direct materials/direct labor by the standard amount of direct materi-als/direct labor allowed for the actual output. For example, if 3 direct labor hours are allowed to produce one unit and 100 units are actually produced, the standard number of direct labor hours for those 100 units is 300 hours (3 hours per unit × 100 units). The standard cost for direct labor for the 100 units is the standard hourly wage rate multiplied by the 300 hours allowed for the actual output regardless of how many direct labor hours were actually worked. This can be a difficult concept to grasp, because you are mixing standard cost with actual output to find the total standard cost allowed for the actual output. In a standard cost system, overhead is generally allocated to units produced by calculating a predeter-mined, or standard, manufacturing overhead rate (a volume-based method). This standard manufacturing overhead rate is budgeted overhead cost divided by the budgeted activity level of the allocation base. The best cost driver to use as the allocation base is the measure that best represents what causes overhead. The most frequently used allocation bases are direct labor hours, direct labor costs, or machine hours. For a labor-intensive manufacturing process, the proper base is probably direct labor hours or direct labor costs. For an equipment-oriented manufacturing process, number of machine hours is the better allocation base. The predetermined overhead rate is then multiplied by the standard amount of the allocation base that is allowed for producing one unit of product, and then that standard overhead amount for one unit is multiplied by the number of units actually produced to calculate the standard overhead cost to be applied to all the units produced.
Posted on: Thu, 11 Dec 2014 13:41:38 +0000
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