Standard costing: formula sheet

Key formulas

Standard material cost per unit

Standard kg per unit × standard price per kg

Build one line per material. Include normal losses in the kg per unit if the standard allows for them.

Standard labour cost per unit

Standard hours per unit × standard rate per hour

Use the hours that should be paid for, including any allowed idle time.

Standard overhead absorption rate

Budgeted overhead ÷ budgeted activity level

Activity is usually labour hours or machine hours. Do variable and fixed rates separately.

Standard cost per unit

Material + labour + variable overhead (+ fixed overhead if absorption costing)

Check the question for marginal or absorption costing.

Standard cost of actual output

Actual units produced × standard cost per unit

Always the base for comparing with actual costs, never budgeted output.

Standard input with a normal loss

Good output required ÷ (1 − normal loss %)

For example, 9 kg of good output with 10% normal loss needs 9 ÷ 0.9 = 10 kg of input.

Material price variance

(Actual quantity × standard price) − (Actual quantity × actual price)

Equivalent: AQ × (SP − AP). Positive is favourable. Use quantity purchased if inventory is held at standard price; otherwise quantity used.

Material usage variance

(Standard quantity for actual output − actual quantity used) × standard price

Positive is favourable. Standard quantity = actual output units × standard quantity per unit.

Total material cost variance

(Standard quantity for actual output × standard price) − (Actual quantity × actual price)

Equals price variance plus usage variance, when purchases equal usage.

Standard quantity for actual output

Actual units produced × standard kg per unit

Never use budgeted units here.

Inventory movement

Opening inventory + purchases − closing inventory = quantity used

Use this when a question gives purchases and inventory but not usage.

Total labour variance

(Standard hours for actual output × standard rate) − (actual hours paid × actual rate)

Positive is favourable, negative is adverse. It equals rate + idle time + efficiency.

Labour rate variance

(Actual hours paid × standard rate) − actual cost of hours paid

Use hours paid, not hours worked, when idle time exists.

Labour idle time variance

Idle hours × standard rate

Always adverse. Idle hours = hours paid − hours worked.

Labour efficiency variance

(Standard hours for actual output − actual hours worked) × standard rate

Standard hours for actual output = actual units × standard hours per unit.

Check

Rate + idle time + efficiency = total labour variance

If there is no idle time, hours paid equal hours worked and the idle variance is zero.

Variable overhead expenditure variance

(Actual hours × standard VOH rate per hour) − Actual variable overhead cost

Positive = favourable, negative = adverse. Use the hours that the overhead is based on (usually hours worked).

Variable overhead efficiency variance

(Standard hours for actual output − Actual hours) × standard VOH rate per hour

Fewer hours than standard is favourable. Same hours difference as labour efficiency.

Fixed overhead expenditure variance

Budgeted fixed overhead − Actual fixed overhead

Actual below budget is favourable. Applies under both absorption and marginal costing.

Fixed overhead volume variance

(Actual output − Budgeted output) × standard fixed overhead per unit

Equals absorbed overhead less budgeted overhead. Absorption costing only.

Fixed overhead capacity variance

(Actual hours − Budgeted hours) × standard fixed overhead rate per hour

More hours than budget is favourable.

Fixed overhead efficiency variance

(Standard hours for actual output − Actual hours) × standard fixed overhead rate per hour

Fewer hours than standard is favourable.

Volume variance check

Volume = Capacity + Efficiency

Use this to check your arithmetic and signs.

Total fixed overhead variance

Absorbed fixed overhead − Actual fixed overhead = Expenditure + Volume

Absorbed = actual output × standard fixed overhead per unit.

Sales price variance

(Actual price − Standard price) × Actual units sold

Equivalent to Actual revenue − (Actual units × Standard price). Positive result is favourable.

Sales volume variance (absorption costing)

(Actual units sold − Budgeted units) × Standard profit per unit

Use standard profit per unit, which is standard price less standard full cost. More units than budget is favourable.

Sales volume variance (marginal costing)

(Actual units sold − Budgeted units) × Standard contribution per unit

Use standard contribution per unit, which is standard price less standard variable cost.

Standard profit per unit

Standard selling price − Standard full cost per unit

Full cost includes absorbed fixed overhead at the standard rate.

Standard contribution per unit

Standard selling price − Standard variable cost per unit

Fixed overheads are excluded.

Operating statement (structure)

Budgeted profit + F variances − A variances = Actual profit

Treat adverse as negative and favourable as positive, then add them all.

Sales price variance

Actual revenue − (Actual units sold × Standard price)

Positive is favourable. Same in both costing systems.

Sales volume variance (absorption)

(Actual units sold − Budgeted units) × Standard profit per unit

More units than budget is favourable.

Sales volume variance (marginal)

(Actual units sold − Budgeted units) × Standard contribution per unit

Use contribution, not profit, under marginal costing.

Material price variance

(Actual quantity × Standard price) − Actual cost

Positive is favourable. Use quantity purchased if the question values on purchase.

Material usage variance

(Standard quantity for actual output − Actual quantity used) × Standard price

Standard quantity is flexed to actual output.

Labour rate variance

(Actual hours paid × Standard rate) − Actual labour cost

Positive is favourable.

Labour efficiency variance

(Standard hours for actual output − Actual hours worked) × Standard rate

Idle time is separate if given. Use hours worked here.

Variable overhead expenditure variance

(Actual hours × Standard rate per hour) − Actual variable overhead

Efficiency variance uses the same hours difference as labour, at the variable overhead rate.

Fixed overhead expenditure variance

Budgeted fixed overhead − Actual fixed overhead

The only fixed overhead variance under marginal costing.

Fixed overhead volume variance (absorption)

(Actual output − Budgeted output) × Standard fixed overhead per unit

Absorbed minus budgeted fixed overhead. Not used under marginal costing.

Standard usage variance

(Standard quantity for actual output − Actual quantity) × Standard price

Worked input by input. Adverse if actual use is higher.

Material mix variance

(Actual total input in standard mix − Actual quantity of each input) × Standard price

Add across inputs. Positive is favourable. Total input quantity is the same on both sides.

Material yield variance

(Actual output − Standard output from actual input) × Standard cost per unit of output

Positive is favourable, negative is adverse. Equivalent shortcut in input units: (Standard total input for actual output − Actual total input) × Standard average cost per unit of input.

Standard output from actual input

Actual total input × (Standard output ÷ Standard input)

Uses the standard yield, for example 90 ÷ 100.

Reconciliation

Mix variance + Yield variance = Usage variance

Use this to check your answer every time.

Labour mix variance

(Actual total hours in standard mix − Actual hours of each grade) × Standard rate

Same method as materials, with hours and rates. Yield equals the efficiency variance on total hours.

Total variance split

Traditional variance = Planning variance + Operational variance

Use this as your check when all three variances are valued on the same price and base. Watch the signs: adverse and favourable parts can partly cancel. The check may not hold if the operational variance is valued at the revised price.

Material price planning variance

(Original standard price − Revised standard price) × Actual quantity purchased

Positive = favourable. Use the actual quantity bought.

Material price operational variance

(Revised standard price − Actual price) × Actual quantity purchased

Positive = favourable. This is the buyer's responsibility.

Material usage planning variance

(Original standard quantity for actual output − Revised standard quantity for actual output) × Original standard price

Positive = favourable. Valued at the original standard price, as in the standard ACCA method.

Material usage operational variance

(Revised standard quantity for actual output − Actual quantity used) × Revised standard price

Positive = favourable. Valued at the revised standard price, as in the standard ACCA method. If the revised price differs from the original, the planning and operational parts need not add up to the traditional usage variance. They add up only if prices are unchanged, or if the question states a basis that makes them agree. Follow the basis stated in the question.

Labour rate planning and operational

Planning: (Original rate − Revised rate) × Actual hours. Operational: (Revised rate − Actual rate) × Actual hours

Same logic as material price. Positive = favourable.

Sales market size and share

Market size planning variance = (Actual market size − Original budgeted market size) × Original budgeted share % × Standard contribution per unit. Market share operational variance = (Actual share % − Budgeted share %) × Actual market size × Standard contribution per unit

Planning is favourable if the market is bigger than budgeted. Operational is favourable if share is higher than budgeted. Check the budget share and contribution per unit used in the question.

Quick revision

• Standard cost = planned cost per unit; variances compare actual with standard for actual output.
• Favourable (F) means profit is higher than expected; adverse (A) means lower.
• Material price variance = (standard price − actual price) × actual quantity purchased when stock is held at standard cost. Actual quantity used applies only if the price variance is recognised at usage.
• Material usage variance = (standard quantity for actual output − actual quantity used) × standard price.
• Labour rate variance = (standard rate − actual rate) × actual hours paid. Labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.
• Idle time variance = idle hours (hours paid − hours worked) × standard rate, and it is normally adverse because it is a cost of paid but unproductive hours.
• Fixed overhead expenditure variance = budgeted fixed overhead − actual fixed overhead. The fixed overhead volume variance arises under absorption costing only. It is split into capacity and efficiency variances when overheads are absorbed on a labour-hour (or machine-hour) basis. Under marginal costing only the expenditure variance exists.
• Sales price variance = (actual price − standard price) × actual units sold.
• Sales volume variance = (actual units − budget units) × standard profit per unit under absorption costing, or standard contribution per unit under marginal costing.
• In an operating statement, start with budget profit, add or subtract each variance, and end at actual profit.
• Mix variance compares actual mix with standard mix; yield variance compares total output with the standard output from the inputs used.
• Planning variances relate to the revision of the standard; operational variances compare actual with the revised standard.

Common mistakes

• Ignoring normal loss when setting the material quantity. Fix: Divide required good output by (1 − normal loss %) to find the input needed, then multiply by price.
• Using budgeted output instead of actual output when finding the standard cost for comparison. Fix: Multiply actual units produced by the standard cost per unit before comparing with actual cost.
• Valuing the usage variance at the actual price. Fix: Always use the standard price for usage. Actual price belongs only in the price variance.
• Using budgeted output to find the standard quantity. Fix: Use actual units produced × standard quantity per unit. The standard is flexed to actual output.
• Using hours worked instead of hours paid in the rate variance. Fix: Rate always compares the hours you paid for with their actual cost. Underline hours paid in the question.
• Valuing efficiency at the actual rate. Fix: Efficiency and idle time are quantity variances. Value them at the standard rate.
• Using standard hours instead of actual hours in the variable overhead expenditure variance. Fix: Expenditure always uses actual hours worked × standard rate against actual cost. Efficiency is the only one using standard hours.
• Calculating a fixed overhead volume variance under marginal costing. Fix: Check the costing method first. Under marginal costing, fixed overhead is not absorbed, so only the expenditure variance exists.
• Using contribution per unit for the volume variance in an absorption costing question. Fix: Underline the costing method in the question. Absorption means standard profit. Marginal means standard contribution.
• Valuing the volume variance at the standard selling price instead of the margin. Fix: Volume is valued at standard margin only. Revenue effects of price belong in the price variance.

Exam tips

• In objective questions, match key words to the standard type before reading the options. This is quick and avoids traps.
• In Section C discussion, name the type of standard and then state its effect on motivation and on variances. A bare definition earns little.
• Always show the cost card layout. Even a rough table-like list of lines gains method marks if arithmetic slips.
• Check whether the question says marginal or absorption costing before including fixed overhead.
• When asked for advantages and disadvantages, give a balanced answer and apply it to the business in the scenario.
• In objective test questions, write down the standard quantity first. Many wrong options are built from budgeted output.
• Check whether the question says inventory is held at standard cost. This decides whether price is based on purchases or usage.
• Always state F or A. In objective tests the label is part of the correct option.