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Standard Costing - Materials

Richard Clarke

Standard Costing Framework – Made Easy

What is Standard Costing?

Standard costing is a technique used to assign expected (standard) costs to products and services. These are then compared with actual costs to determine variances, allowing management to control costs and evaluate performance.

⚙️ Core Components

  1. Standard Cost – Predetermined cost per unit under efficient conditions
  2. Actual Cost – Real cost incurred
  3. Variance – The difference between standard and actual costs
  4. Variance Analysis – Examining the cause of the variances

Types of Variances

Material Variances

  • Material Price Variance (MPV)
  • Material Usage Variance (MUV)
  • Material Mix Variance
  • Material Yield Variance

‍ Labour Variances

  • Labour Rate Variance
  • Labour Efficiency Variance
  • Idle Time Variance
  • Labour Mix Variance

Overhead Variances

  • Variable Overhead Expenditure & Efficiency
  • Fixed Overhead Expenditure & Volume (split into capacity and efficiency)

Example: Material Variances

Scenario:

A company manufactures 2,000 units of product Z using materials A and B.

Standard Mix per 1,000 units:

  • Material A: 600 kg @ £4/kg
  • Material B: 400 kg @ £6/kg
  • Total standard input per 1,000 units = 1,000 kg

For 2,000 units, the standard input = 2,000 kg
Expected cost:

  • A: 1,200 kg × £4 = £4,800
  • B: 800 kg × £6 = £4,800
  • Total Standard Cost = £9,600

Actual Usage:

  • A: 1,180 kg @ £4.30
  • B: 900 kg @ £5.80
  • Total Actual Input = 2,080 kg
  • Total Actual Cost = (1,180 × 4.30) + (900 × 5.80) = £10,294

Step 1: Material Price Variance (MPV)

Formula:
(Standard Price − Actual Price) × Actual Quantity

  • A: (4.00 − 4.30) × 1,180 = £(354) Adverse
  • B: (6.00 − 5.80) × 900 = £180 Favourable

Total MPV = £(174) Adverse

Step 2: Material Usage Variance (MUV)

Formula:
(Standard Quantity − Actual Quantity) × Standard Price

Standard Quantity for 2,000 units:

  • A: 1,200 kg
  • B: 800 kg

Actual:

  • A: 1,180 kg

  • B: 900 kg

  • A: (1,200 − 1,180) × £4 = £80 Favourable

  • B: (800 − 900) × £6 = £(600) Adverse

Total MUV = £(520) Adverse

Step 3: Material Mix Variance

Total Actual Input = 2,080 kg
Standard mix: 60% A, 40% B

  • A: 2,080 × 60% = 1,248 kg
  • B: 2,080 × 40% = 832 kg

Formula:
(Revised Standard Quantity − Actual Quantity) × Standard Price

  • A: (1,248 − 1,180) × £4 = £(272) Adverse
  • B: (832 − 900) × £6 = £(408) Adverse

Total Mix Variance = £(680) Adverse

Step 4: Material Yield Variance

Formula:
(Standard Input − Actual Input) × Weighted Average Std Price

  • Standard Input = 2,000 kg
  • Actual Input = 2,080 kg
  • Weighted Avg Price = (£4.80)

Yield Variance:
= (2,000 − 2,080) × £4.80 = £(384) Adverse

✅ Variance Summary:

Variance Type Amount
Price Variance £(174) A
Usage Variance £(520) A
Mix Variance £(680) A
Yield Variance £(384) A
Total Material Variance £(1,758) A

ACCA Exam Tip

Break every standard costing question into clear steps:

  • Identify the standard and actual usage
  • Apply correct formulas
  • Label variances as Favourable (F) or Adverse (A)
  • Always explain your logic clearly in narrative-based questions