Hi guys . I would like to ask you for help. On standard cost card per unit materials are calculated as 3 kg x 2 pounds per kilogram which equals 6 pounds. Actual usage of material is 100 kilograms. Standard usage is 120 kilograms.I saved 20 kilograms. When I want to calculate my saving in terms of money I multiply 20 kilograms times 2 pounds (standard cost) which equals to 40 pounds. I have troubles to grasp why when I want to calculate my actual savings I have to use standard cost which is 2 pounds. Standard cost is not actual cost so why I have to use standard cost when I calculate my actual saving on materials ? Please, help
Standard costing is used as a form of planning for businesses and the expected costs which will then enable them to work out the variances between the expected costs and the actual costs, the standard cost card is used with the information that the business has to enable it to come up with a total cost per unit, it can then use this figure against the actual cost figure to work out any variances and then investigate the reasons behind the variances.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
I would suggest, after a long break, the best place to start is to go back to level 2 costings, work through the book again and it will help with your level 3 and beyond.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Standard costing is used as a form of planning for businesses and the expected costs which will then enable them to work out the variances between the expected costs and the actual costs, the standard cost card is used with the information that the business has to enable it to come up with a total cost per unit, it can then use this figure against the actual cost figure to work out any variances and then investigate the reasons behind the variances.
