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Unit Cost Formula:
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Standard costing is a cost accounting technique that uses predetermined costs for materials, labor, and overhead. It helps in cost control, variance analysis, and performance evaluation in manufacturing and service industries.
The standard unit cost formula is:
Where:
Explanation: This formula represents the total cost to produce one unit of product, including all direct and indirect manufacturing costs.
Direct Material (DM): Raw materials directly used in production that can be traced to the finished product.
Direct Labor (DL): Wages and benefits paid to workers directly involved in manufacturing the product.
Overhead (OH): Indirect manufacturing costs including factory rent, utilities, depreciation, and indirect labor.
Instructions: Enter the standard costs for direct material, direct labor, and overhead in USD per unit. All values must be non-negative numbers.
Q1: What is the difference between standard cost and actual cost?
A: Standard cost is predetermined based on estimates, while actual cost is the real cost incurred during production. Variances between them help in cost control.
Q2: How is overhead rate calculated?
A: Overhead rate is typically calculated as total estimated overhead costs divided by an allocation base (like direct labor hours or machine hours).
Q3: What are the advantages of standard costing?
A: Helps in budgeting, cost control, performance evaluation, inventory valuation, and simplifying accounting procedures.
Q4: When should standard costs be revised?
A: Standard costs should be reviewed and revised regularly, especially when there are significant changes in material prices, labor rates, or production methods.
Q5: How does this relate to CA Inter syllabus?
A: Standard costing is a crucial topic in CA Inter Cost Accounting paper, covering concepts, variances, and their analysis for decision making.