A production process is budgeted to produce 50,000 units incurring a variable cost of 2,00,000 and a fixed cost of 1,20,000 in 25,000 man hours over a 10 day period. During a period 60,000 units have been produced incurring a variable cost of 2,15,000 and a fixed cost of 1,75,000 in 33,000 hours over 11 days.

Calculate Standards for actual

• output
• input (time)
• Periods (days)

Working table with the data available in the problem

	Standard				Actual	Absorbed
	Budgeted	for AO	for AI	for AP
I) Factor
a) Output (units) a) Output (units) b) Periods (Days) c) Input [Time (man hrs)] d) Overhead Cost 1) Variable 2) Fixed 3) Total	50,000 10 25,000 2,00,000 1,20,000 3,20,000				60,000 11 33,000 2,15,000 1,75,000 3,33,000

The data in this illustration is used in the explanations below.

Factor

The factor with which the standard/budgeted data has to be multiplied to obtain the required recalculated standard.

Logic (based on Variable Cost)

If SO is		SC is
50,000 units	⇒	2,00,000
60,0000 units	⇒	?

Standard Cost for an Output of 60,000 units

=	2,00,000 × 60,000 units 50,000 units
=	Standard Cost × Actual Output Standard Output

• Standard Cost for Actual Output

  SC(AO)

  =

  SC × AO SO

  Budgets are always as per standards. Thus standard cost can be interpreted as Budgeted cost in which case, the Budgeted Output becomes the standard output.

  ⇒ SC(AO)

  =

  BC × AO BO

  Budgeted Cost = Budgeted Output × Budgeted Rate per unit

  ⇒ SC(AO)	=	BO × BR/UO × AO BO
  	=	AO × BR/UO Actual output × Budgeted Rate per unit output

  SC(AO) = BC

  Standard cost for actual output would be equal to budgeted cost where actual output is equal to budgeted output i.e. when AO = BO.

  SC(AO)	=	AO × BR/UO
  	Since BO = AO
  	=	BO × BR/UO
  	=	BC

• Standard Input for Actual Output

  SI(AO)

  =

  SI × AO SO

  Taking Time as input

  ST(AO)

  =

  ST × AO SO

• Standard Periods for Actual Output

  SP(AO)

  =

  SP × AO SO

  Taking Days as periods

  SP(AO)

  =

  SP × AO SO

Factor

The factor with which the standard/budgeted data has to be multiplied to obtain the required recalculated standard.

Logic (based on Variable Cost)

If SI is		SC is
25,000 man hours	⇒	2,00,000
33,000 man hours	⇒	?

Standard Cost for an Input of 33,000 man hours

=	2,00,000 × 33,000 man hours 25,000 man hours
=	Standard Cost × Actual Input Standard Input

• Standard Cost for Actual Input

  SC(AI)

  =

  SC × AI SI

  Budgets are always as per standards. Thus standard cost can be interpreted as Budgeted cost in which case, the Budgeted Input becomes the standard input.

  ⇒ SC(AI)

  =

  BC × AI BI

  Budgeted Cost = Budgeted Input × Budgeted Rate per unit input

  ⇒ SC(AI)	=	BI × BR/UI × AI BI
  	=	AI × BR/UI Actual input × Budgeted Rate per unit input

  SC(AI) = BC

  Standard cost for actual input would be equal to budgeted cost where actual input is equal to budgeted input i.e. when AI = BI.

  SC(AI)	=	AI × BR/UI
  	Since BI = AI
  	=	BI × BR/UI
  	=	BC

• Standard Output for Actual Input

  SO(AI)

  =

  SO × AI SI

  Taking Time as input

  SO(AT)

  =

  SO × AT ST

• Standard Periods for Actual Input

  SP(AI)

  =

  SP × AI SI

  Taking Time as input and Days as periods

  SD(AT)

  =

  SD × AT ST

Factor

The factor with which the standard/budgeted data has to be multiplied to obtain the required recalculated standard.

Logic (based on Variable Cost)

If SP is		SC is
10 days	⇒	2,00,000
11 days	⇒	?

Standard Cost for 11 days

=	2,00,000 × 11 days 10 days
=	Standard Cost × Actual Periods Standard Periods

• Standard Cost for Actual Periods

  SC(AP)

  =

  SC × AP SP

  Budgets are always as per standards. Thus standard cost can be interpreted as Budgeted cost in which case, the Budgeted Periods becomes the standard periods.

  ⇒ SC(AP)

  =

  BC × AP BP

  Budgeted Cost = Budgeted Periods × Budgeted Rate per unit period

  ⇒ SC(AP)	=	BP × BR/UP × AP BP
  	=	AP × BR/UP Actual periods × Budgeted Rate per unit period

  SC(AP) = BC

  Standard cost for actual periods would be equal to budgeted cost where actual periods are equal to budgeted periods i.e. when AP = BP.

  SC(AP)	=	AP × BR/UP
  	Since BP = AP
  	=	BP × BR/UP
  	=	BC

• Standard Output for Actual Periods

  SO(AP)

  =

  SO × AP SP

  Taking Days as periods

  SO(AD)

  =

  SO × AD SD

• Standard Input for Actual Periods

  SI(AP)

  =

  SI × AP SP

  Taking Time as input and Days as periods

  ST(AD)

  =

  ST × AD SD

To enable easier calculation of the recalculated standards, it would be helpful if we can find the factors to be used and write them down in the working table itself.

Factor for recalculating standards

• for actual output

  (AO)	=	AO SO
  	=	60,000 units 50,000 units
  	=	1.2

• for actual input

  (AI)	=	AI SI
  	=	33,000 man hours 25,000 man hours
  	=	1.32

• for actual periods

  (AP)	=	AP SP
  	=	11 days 10 days
  	=	1.1

	Standard				Actual	Absorbed
	Budgeted	for AO	for AI	for AP
I) Factor		1.2	1.32	1.1
a) Output (units) b) Days c) Time (man hrs) d) Overhead Cost 1) Variable 2) Fixed 3) Total	50,000 10 25,000 2,00,000 1,20,000 3,20,000	60,000 12 30,000 2,40,000 1,44,000 3,84,000	66,000 13.2 33,000 2,64,000 1,58,400 4,22,400	55,000 11 27,500 2,20,000 1,32,000 3,52,000	60,000 11 33,000 2,15,000 1,75,000 3,33,000

The recalculated standard data is obtained as a product of the factor of the column and the related data from the budgeted column.