two categories of standard costing
I’ve learned that there are two categories of standard costing. One is the complete method, and the other one is the partial method. In a perfect standard costing method, the standard costs are assigned to the work in progress (WIP). The difference that exists between the real and usual price is derived from the variance account. The debits that are present in the WIP are a representation of the standard expenses that have been allowed on the finished goods and those which have been partially finished during the period. The method is termed as complete because all the activities being carried out during the time are shown and evaluated through the various performance measurements. In the partial standard costing method, only a section of the productive work is assessed during the period. In the approach, the standard costs are not recorded until all the units are transformed into finished goods. The variances are computed and noted down at the time the transfers are taking place. The approach is termed as partial because the work that is remaining in the WIP is not evaluated.
Also, I’ve learned that two methods can be used to evaluate the material prices and in the recording of direct materials in the inventory accounts. One of the ways is through recording the material price variance when the materials are still under receivership. That will be done based on the quantity being purchased. Thus, the purchase of the direct materials is charged in the material control at their standard prices, and the amount of the direct material is noted down when the purchase is being recorded. Also, the quantity of direct material variance will be recorded when the direct materials are being used. Another method is through recording the material price variance when the content is being used. That is based on the quantity being used in the production process. That implies that the purchase made on direct material will be charged to the material control at their actual price of purchase. Thus, the price variance of the immediate context and the quantity variance of the direct material will be noted down when the content is being used.
Lastly, I’ve learned that price variance occurs when there is a change in the determining factors which were not anticipated when the standards were being determined. For instance, a price variance will happen if the quantity of the materials being purchased, and other factors such as services provided by the vendor, the negotiation skills of both the buyer and the seller change. The diversification drives the quantity of the material in the product, the volume of production, and the productivity that is connected to the elements and in some instances, even the material mix. The effects of diversification in production will be visible in the quantity standards that are allowed. A variation in the production volume will be accounted for in the flexible budget that is used in the computation of material quantity variance. Thus, the primary cause of the difference in the material quantity is the production materials, the level of productivity, and the material mix. In an attempt to establish a favorable variance in price, there is a need to purchase vast quantities of the materials that are required to obtain the discounts in the amount purchased.