Q. 7. What Are the Similarities and Differences between Budgeting and Standard Costing?

Similarities Between Standard Costing and Budgetary Costing Basis of Difference Standard Costing Budgetary Costing Predetermined cost Standard costs are predetermined costs fixed according to estimates. Budgetary costs are also estimated costs. Advance cost Standard costs are estimated in advance and compared to actual costs. Budgetary costs are also estimated in advance and compared to actual cos…

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Q. 8. Standard Costing: Practical Problems and Solutions

This article presents three practical problems, along with solutions, for standard costing. Problem 1 The standard cost card shows the following details relating to the materials needed to produce 1 kg of groundnut oil: Quantity of groundnut oil required: 3 kg Price of groundnut oil: $2.5/kg Actual production data are given as follows: Production during the month: 1,000 kg Quantity of material use…

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Q. 9. How to Compute Different Overhead Cost Variances?

There are two types of overhead cost variances: Fixed overhead variance Variable overhead variance 1. Fixed Overhead Variance This is a cost that is not directly related to output; it is a general time-related cost. Specifically, fixed overhead variance is defined as the difference between standard cost and fixed overhead allowed for the actual output achieved and the actual fixed overhead cost in…

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Q. 10. How to Compute Sales Variances?

Answer What Are Sales Variances? The change in price and change in sales quantity give birth to sales variances. There are two approaches to compute sales variances that are explained below: 1. Turn over method 2. Profit method 1. Turn Over Method The turn over method can be : (i) Value variance This is the difference between budgeted Sales and Actual Sales. (ii) Volume variance This is the variat…

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Management Accounting

Definition The application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in the planning and control of operations of the undertaking. Explanation Management accounting uses both financial and cost information to advise management in planning and controlling the organization…

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