Textile Costing Notes

7/31/2019 Textile Costing Notes

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COSTING

Cost Accountancy:It is the application of costing & cost accounting principles, methods, techniques to the science, art &practice of cost control & ascertainment of profitability. IT also includes presentation of information derivedfor the purpose of managerial decision making.

Cost accountancy is thus the science, art and practice of cost control.

Science: It includes systematic knowledge which a cost accountant should possess for proper discharge of hisresponsibilities. (e.g. Organizational methods, production & maternal control, work study & operationalresearch, linear programming etc) . It enables him to understand the technical and organizational bases of the condition to which his cost accountancy knowledge has to be applied.

Art: It includes ability & skill with which a cost accountant is able to apply his cost accounting knowledge tothe condition & problem with which he is required to deal. ( Problem: Ascertainment of the cost, control of cost, ascertainment of profitability, replacement of plants by new & improved ones).

Practice: It includes his efforts in the field of cost accountancy (e.g. presentation of information for thepurpose of decision making & keeping initial record.

Cost Accounting: It is a process of accounting cost which begins with recording of income & expenditure an dpreparation of statistical data: It is a formal mechanism by means of which cost of the products or serves areascertain & controlled.

Cost: It is a monitory measure of the value of economic services acquired by the unit

Costing: It is defined as classifying, recording and appropriate allocation of the expenditure. For thedetermination of the cost of product or services; the relation of these cost to sell value & determination of profitability.

Costing is need base: Costing is bases for estimation

Types of Costing1 Standard Costing

2 Marginal Costing3 Historical Costing4 Estimated costing5 Direct Costing

6 Uniform Costing7 Absorption Costing8 Responsibility Accounting


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Types of Costing:

1) Standard Costing:

It is a predetermined cost which is computed in advanced on the specification of all factors affectingcosts. Standard costing is frequently employed in consumption with budgetary control .the ascertainment

and used of standard cost and measurement & analysis of variances between standard cost and actual costincurred. It helps to control shop floor activities.

2) Marginal Costing:It is the ascertainment by the differentiation between fixed cost and variable cost, of marginal costing

and of the effect on profit of changes in the volume and type of output.Marginal costing is technique of costing & is extensively used in all industries foe profit planning, cost controland decision making.

3) Historical costing:The ascertainment of cost after they have been incurred. since costs are ascertained after they are

incurred it does not help to exercise control on costs.

4) Estimated costing:The ascertainment of estimated cost in advance prior to the performance the operation even before

acceptance of sell orders. Estimated costs are used for evaluation of the performance by comparison with theactual but are less accurate than standard costing.

5) Direct costing:The practice of charging all direct costs to operations process or products leaving all indirect costs to

be charged to profit & loss account of the period in which they are arised.Direct costing from marginal costing in that same fixed cost could be considered as direct cost.

But all fixed cost are charged to profit and loss account under marginal costing.

6) Uniform Costing:It is used by several undertaking of the same costing principles. When used and operated under

central control, uniform costing promotes operating efficiency by ensuring inter unit or an inter firmcomparison.

7) Absorption costing:The practice of charging all cost both variable and fixed to operation process and product.

8) Responsibility accounting:This is used to finding out the performance index of departments(i.e. various cost centers)

Example: weaving profit depends on the product which comes from spinning separtment.


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Elements of costing:Cost: The tearm cost indicates the amount of (actual) expenditure incurred. From technical point of view for theinstant cost may be used when referring to the manufacturing cost of selling and disrtribution.

Classification of cost:Cost

Material labour overhead

Direct indirect Direct indirect Direct indirect

A cost must be studied in relation o its purpose and conditionsA cost must be related to its purpose of causing studying in same, different conditions under which it hasbeen computed .Even the purpose of cause studying in same , different conditions alter the cost.The total cost per unit of production in a manufacturing concern varies with different outputs becauseoutput rises the amount fixed cost born by each unit deceases. The resulting costs although all total differsince the condition have varied.Total cost:This sum of all items of expenses whether paid or not which have been incurred in the production, sale,distribution or in the rendering of a service to a customer.

Classification of cost:

1)Direct material2) Direct labour3) Direct expenses4)Overheads

a)Production : i) departmentii) generaliii) services

b)Administrativec)Selling & Distribution

Prime cost = 1+2+3Factory cost =1+2+3+aCost of goods manufactured = 1+2+3+a+bCost of goods sold (total cost)= 1+2+3+a+b+c

1)Direct materialDirect material is all material that become part of the product. It is a material which can be measured andcharged directly to the cost of product. Example: raw material, packing bags , cartons, boxes, card board, poly

bags, web, sliver, comber lap, roving, yarn for weaving dpt. Etc. for book manufacturing companies: paperink, binding paper, glue, are the direct raw materials..


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2) Direct labour:Wages paid to the skilled or unskilled labours, wages those are directly involved in handling of a particularproduct.

3) Direct expensesIt includes any expenditures other than direct material or direct labour directly incurred in specific job order.Such special necessary expenses is charged directly to the particular job as apart of prime cost.

Example: hire of special or single purpose tools or equipments for a particular order or product. Cost of special layout or design, maintainance cost of such equipments.

4)Overheads:Direct material, direct labour& direct expenses constitute prime cost and all expenses over and above theprime cost is overhead. Prime cost + production overhead represents production or factory cost.

Overhead may be defined as the cost of indirect labour and such other expenses , including servicesas can not conventionally be changed direct to specific cost unit. alternately overheads are all expenses otherthan direct expenses. Example: maintainance of capital assetOverhead may be sub divided intoI)Production OverheadIi) Administrative OverheadsIii) Selling And Distribution Overhead..

I) Production Overhead:it cover all indirect expenditures incurred by undertaking(organisation) from the recipt of an order until its

completion ready for dispatch either to the customer or to be finished goods stores. Any expenses not takento account as a direct expenses are knows as overheads.Example:i)rent, rates insurance chargeable against workers, excluding any which can be to the generaladministration offices, selling department, ware house and distributionii) indirect labour: supervisor, working staff, foreman ect. shop clerical work, testing, gauging and examining.iii) power: ( electricity, steam, gas, compressed air, hydraulic and other services in aid of production , processfuel internal transport, canteeniv) consumable stores and indirect material (for e.g. cotton waste, grease, oil, small tools etc.)v) depreciation, maintainance and repairs of buildings, plant, machinery tools etc

vi) Sundry expresser are personnel such as employment office rewards, welfare, security, canteen, recreation,first aid, entertainment, news papers etc..Ii) Administrative Overheads

All expenses incurred in controlling administrative activities. Example : offices salaries of theaccountants and clerks, salaries of the secretaries, labour office, account officeIii) Selling And Distribution Overhead:Selling:- advertisements, agents, sales manager, training to salesman, cost of preparing tenders, rent of salesroom , services after sales, consumer sale.Distribution :- this comprises all expenditure incurred from the time product is completed in the works until it

reaches its destination. Example: loading, unloading, finished store charges or ware house, transportation of goods, goods on sales or return, upkeep and running of delivery vehicles, dispatch clerk


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Marginal Costing & Break Even Analysis

Total Cost Line

Variable Cost

Fixed Cost Line

(% Output)

Assumptions of Break Even Analysis.

1) The fixed Cost is absolutely fixed irrespective of the level of o/p.

Fixed Cost

Output

2) The variable cost varies linearly or directly within the level of output.

Variable Cost

Fixed Cost

Output


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3) Total cost consists of only two categories, namely fixed cost & variable cost. If at all there is semi fixed orsemi variable cost, it can be conveniently broken down into two i.e. Fixed Cost & Variable Cost.

Variable Cost

Fixed Cost

4) Sales revenue line is absolutely linear within the level of o/p.

Variable Cost

5) Whatever is produced is sold & there is no accumulation of goods in the finished goods stores.\

Fixed Cost


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OM = Break Even Point (BEP) (Output)

ON = Break Even Point (BEP) (sales)

MP =margin of safety (MOS) (Output)

NQ = margin of safety (MOS) (sales)

=Angle Of Incidence

Break Even Point (BEP):

# it is a point of intersect ion of total cost line and sales revenue line and t can be expressed in terms of output and Break Even Point (sales).

# Break Even Point is situated where there is no loss no profit. The region on the right hand side of the BreakEven Point is known as profit region and on left side of that is known as loss region.

# From the position of the Break Even Point occurs at low level of out put , the profitability is more at if occurs at high level of output then the profitability is less.

# A manufacturing company has to have a break even chart drawn separately for different product and basedon these charts the management can take important decisions called as product mix ed decision to increaseoverall profitability of company.

# The Break Even Point gives the indication of loss region based on which company comes to know what isthe minimum level of output & sales it in order to have minimum losses.

Angle Of Incidence:

Te acute angle between the total cost line and sales revenue line is called as angle of i ncidence . Simillar toBreak Even Point it also gives indication of profitability. bigger the angle more is the profitability.

Margin of Safety (MOS):

It is like a buffer which protects the company from incurring losses.

The bigger the margin of safety more is the production and vice versa.

Margin of safety in terms of numerical is the excess level of output over and above the Break Even Point(output) and also margin of safety is excess level of sales over and above the Break Even Point(sales).

The break even chart is very simple to understand and the person who is going to take the decisionbased on break even chart need not have thorough knowledge of costing. Usually the break even charts aredisplayed in managers cabin, who may not be commerce graduate still he may understand it.

Because break even charts are pictorial presentation of the cost data and conclusions can be drawn instantlywithout going in much complicated calculations.


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Marginal Costing

It is a cost required to produce one additional unit of a product. For producing any product there isnecessity of infrastructure in terms of overhead facilities, machineries etc. when we say that one additionalunite of product it means that ll these infrastructure facilities are available and under these condition toproduce one additional unit of a product the cost involved is variable cost. Therefore marginal cost is alsotreated as variable cost. On the basis of of marginal cost different verities of the decisions can be taken.

Where S= sales cost V= variable cost F= fixed cost P= PROFIT

In this equation variable cost may be expressed per unite or total & similarly the fixed cost can be worked outeither in terms of per unit or total and then we can get the profit either in terms of per unit or total.

Contribution C

C = S V

The contribution is very important parameter in marginal costing.

It indicates the contribution generated by making & selling one unit of a product.

The reason why it is called as a contribution and not the profit is that the money generated by making &selling of goods can earn profit only after the recovery of complete Fixed Cost.

But is acts to the funds to the extent of contribution. Base on knowledge of contribution generated bydifferent product, important decision can be taken.

i) make or Buy

ii) Fixing up selling price in competitive situations

iii) Making sales contract

iv) Product mixed decision.

P/V Ratio OR C/S Ratio

P/V Ratio = P/V % = 100

C/S Ratio = C/S % = 100 Where, P = Profit

C = Contribution

V = Variable Cost

S = Sales

The P/V ratio or c/s ratio is called as Profit Volume ration. Which shows the profit earned per unit sale of a product. More technically correct is contribution earned per unit sale of a product.

P/ V ratio is important parameters in marginal costing. It gives a numerical figure of profit earned per unitsale or profit earned per sales of worth 100 when expressed in % The p/v ratio lies between 0 -1 & higher thep/v ratio value more will be the profit & vice versa. Therefore p/v ratio has gain importance in marginal

MARGINAL COST EQUATION: S V = F + P


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costing & for any company they should have objective of improving p/v ratio. Of product in order to increaseprofit. E.g. if a product has selling price of Rs. 15/Unit & variable cost is Rs.10/Unit the p/ V ratio of product is

P/ v ratio = S V = 15 10 = 0.333

Methods to improve p / v ratio :

1) By increasing selling price as much admissible in the market.2) Reducing the variable costa) Reducing Wasteb) Modernizationd) Value engineeringe) Vender analysis (bulk purchase)3) Use correct product mix.

PROBLEM: A textile company has provided the cost related data of one of its product as

under.

i) Fixed Cost = Rs.20000/-

ii) Selling Price/Unit = Rs.10

iii) Variable Cost/ Unit = Rs. 6/-

iv) 100% Capacity Production = 25000 units

a) Draw break Even chart & Find out

i) Break Even Point ii) Angle of incidence iii) Margin of safety at 80% level of output

b) (By using marginal cost equation find out Break Even Point & margin of safety 80% level of output.

Cost 0% 20% 40% 60% 80% 100%

Fixed Cost 20,000 20,000 20,000 20,000 20,000 20,000

Variable Cost 0 30,000 60,000 90,000 1,20,000 1,50,000

Total Cost 20,000 50,000 80,000 1,10,000 1,40,000 1,70,000

Sales Cost 0 50,000 1,00,000 1,15,000 2,00,000 2,50,000

Units 0 5000 1000 15000 20000 25000

Variable cost = No. of Units X Variable Cost

Total Cost = Fixed Cost + Variable

No. of Unit at 100% = 25,000

At 20% = 25,000 (20/100) 20% = 5,000 unit

Now,


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FROM THE GRAPH

Using Marginal Cost Equation

Contribution : C = S V 10 6 = 4

P/ V ratio = = = 0.4

MARGINAL COST EQUATION: S V = F + P

2,00,000 1,20,000 = 20,000 + P

P = 2,00,000 1,20,000

1) Break Even Point (Sales) =

=

Break Even Point (Unit) =

=

2) Margin of Safety (Sales) = =

Margin of Safety (Sales) = Rs.1,50,000

Break Even Point (Sales) = Rs. 50,000/-

1. Break Even Point (output) = 5000 Units

Break Even Point (Sales) = Rs.50,000/-

2. Angle Of Incidence () = 15o

3. Margin of Safety (Units) = 15,000 Units

Margin of Safety (Sales) = Rs.1,50,000/-

Break Even Point (unit) = 5000 Units

Contribution = 4

Profit = Rs.60,000

P/ V ratio = 0.4


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Margin of Safety (Units) = =

Problem: A Manufacturing Company Has Given Sales And Profit Fig. For One Of Its ProductsFor Two Periods.

Period Sales Rs. Profit Rs.I 10,000 4,000II 15,000 7,000

Calculate p/v ratio ,Break Even Point , profit when sales is in Rs.12,000/-,sales required toearn profit of Rs.6,000/-, also calculate fixed cost.

Soln :

MARGINAL COST EQUATION:

S V = F + P

S V = P

P/ V ratio =

=

Profit when sales is in Rs.12,000/-

Increment in sale from period one which is equal to 12,000 10,000= 2,000.

Since p/v ratio is 0.6 it means that.. when sales of Rs.100 profit is Rs 60

For sale of Rs.2000 profit is =

Profit at sales of Rs.1200 = profit in period I + increment in profit

= 4000 + 1200

= 5200

Margin of Safety (Units) = 15,000 Units

P/ V ratio = 0.6

Profit = Rs.1200/-

Profit At Sales Of Rs 1200 Is = Rs. 5200/-


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Break even point

Break Even Point is equivalent to reduction in profit of Rs.4000 from period I

Since p/v ratio is 0.6 it means that..for profit of Rs.60 sales should be Rs.100

for profit of Rs.4000 sales=

Break Even Point (sales) = sales in period I reduction sales

= 10,000 6666.67

= 3333.34

Fixed cost

Since , Break Even Point (sales) =

Fixed cost = 3333.34 0.6 = Rs.2,000/-

Increment from period I (6000 4000) = 2000

Since p/v ratio is 0.6 it means that.. for profit of Rs.60 sales should be Rs.100

for profit of Rs.2000 sales=

sales required to earn profit of Rs.6000 = sales of period I + sales at profit of Rs.2000

= 10,000 + 3333.34

= Rs.13,333.34/-

Sales = Rs.6666.67 -

Break Even Point Sales = Rs.3333.34/-

Fixed cost = Rs.2,000/-

Sales = Rs.3333.34/-

Sales re uired to earn rofit of Rs.6,000 is Rs.13,333.34/-


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Standard CostingStandard Costing can be classified as. 1) Direct Material Cost

2) Direct Labour Cost

3) Fixed Overhead Cost

4) Variable Overhead Cost

1) Direct Material Cost:

i) Direct Material cost is expenditure made to procure the material which is seen or physically present in thefinished product.

Ii) Also primary packing material which is essential to safeguard the products from damaged is alsoconsidered as direct material .

iii) A material whether it should be considered direct or not also depends on the % share fo the cost it takes.

iv) Examples:

Cost of dyes used for dyeing or printing is clearly the direct material cost.

V() However the cost of rivets or the cost of welding rods or oils & grease used may be treated as variableoverhead cost.

2) Direct Labour Cost:i) The wages paid to all that workers who are directly working on the machines or doing a manual work whichis necessary to refine, reshape, reconfirming as far as state of the products is concerned, is taken as Directlabour Cost.

Example:

The ten tar on ring frame is a direct labour, the operator working on printing machine for printing cloth istaken as direct-labour, the labour engaged in repacking re-bolting is also considered as direct labour.

3) Fixed Overhead Cost:

i) The expenses made for carrying out the activities over and above direct material & direct labour cost iscalled as Overhead Cost.

ii) The Fixed Overhead Cost is that cost which remains fixed irrespective of level of output.

Example: Salary of managers, rent of factory and insurance premium.

4) Variable Overhead Cost:

i) This cost is again of the nature like we have seen in Fixed Overhead but us changes with the level of output


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Example: Internal Transportation.

The purpose of std. costing is to keep control on shop floor activities.

Qes: Illustrate with suitable examples how standard costing helps management in controlling shop flooractivities.

Methods To Determine Standard Costing

i) Use of past experience

ii) Engineering Method

iii) Based on the information from other industry

i) Use of past Experience:

In a situation, where the product is manufactured by the company; the company has complete cost datarelated to that product & based on this method the company can determined the std. cost to be used forfuture period and this standard. cost can be revised periodically and the period may be ranging from one

month to one year to two year etc. depending upon the type of industry.

ii) Engineering Method:

If a product to be manufactured was never manufactured before then its related cost is not available; insuch situation standard cost can be determined by engineering method. In which the cost found outanalytically for each component of the product by doing the calculations of requirement of the material,labour & expected overheads.

Example: The cost of the fabric can be found out on the basis of the requirement of the yarn, the knowledgeof m/c, efficiencies & estimation of overhead cost.

iii) Based on information from other industry:

A similar working industry might be producing the same product & the cost data can be procured from thatindustry which can be considered as a guideline for determination of standard. cost

Advantage of Standard Costing:

i) The standard costing helps the management in controlling shop floor activities.

ii) The variance calculated (difference between standard costing & actual costing) indicates those activitywhich need the management control.

iii) The variances calculated can be further splited into subvariances which gives the list of activities in pinpointed manner which gives the list of activities in pin pointed manner which are required to be

controlled & therefore the task of management reduces leading to the reduction in management cost.

iv) The management by exception which says that the management should look into those activities whichare need to be controlled & the activities which are going smoothly should not be disturb by themanagement.

v) Because of better & effective control the licakage of points are locked which increases the overall profit.


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Limitations of Standard Costing:

i) Standard costing involves lots of calculations & paper works as well as manual effort for which some moneyis spend by company. Therefore before installing standard costing system the management have to carry outcost benefit analysis.

ii) It is very difficult to arrive at the most realistic standard costing.

iii) Through experience in standard costing the standard costing which approaching the most realistic valuecan be determined. Even though the basic objective of standard costing is to improve the manufacturingprocess; many times the management uses it for taking actions & victimization of standard costing.

Problem on standard costing

1) A manufacturing company producing readymade garment has given the data of standardcost for manufacturing men shirt per unit of product as under standard cost and quality pershirt.

Cost Category Quantity AmountDirect Mate 2m Rs.100Direct Labour 1.5hr Rs. 60Fixed Overhead 25% of direct material Rs. 25Variable Overhead 25% of direct labour Rs.15

Total Cost/ unit Rs.200The immediate figure the company produces 1000 shirts by utilizing 1900 mt of the fabric purchase at the

rate of Rs.49.5/meter. The labour hrs consumed where 1600 hrs at labour rate of 39 Rs/hr. The FixedOverhead consume was Rs.24,000 & variable Overhead consume was Rs. 16,000

Calculate the main and sub variances & suggest the management corrective measures.

Sol n: No Of Units = 1000

STANDARD(calculated) ACTUAL(given)

Material 2 m no of units 1900mtMaterial Cost Rs.100/2mt Rs.49 s/ mtDirect Labour 1.5hrsno of units 1600 hrs

Fixed Overhead Rs.25no of units Rs.24,000/-Variable Overhead Rs. 15no of units Rs.16,000/-

STANDARD ACTUALMaterial 2000 m 1900mt

Material Cost Rs.50/m Rs.49 s/ mDirect Labour 1500 hrs 1600 hrs

Fixed Overhead Rs.25,000/- Rs.24,000/-Variable Overhead Rs. 15,000/- Rs.16,000/-


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1) Material Cost Variance (MCV) = Standard cost of material Actual cost of the material

= (Standard cost / Material X no. of units ) ( Actual cost /unit X quantity)

= (100 X 1000) (49.5 X 1900)

= 5950 (+ ve ) (F)

2) Material Price Variance (MPV) = Actual Quantity (Standard Price Actual Price)

= 1900 X (50 49.5)

= 950 (+VE) (F)

3) Material Usage Variance (MUV)= Standard Price (Standard Quantity Actual Quantity)

= 50 (2000 1900)

= 5000 (+ ve) (F)

For Checking, MCV = MPV + MUV

= 950 + 5000

4) Labour Cost Variance (LCV) = Standard labour cost Actual labour cost

= (Std labour cost/unit X no of units ) - (Act labour rate X Actual labour hr)

= (60 X 1000) -+ (1600 X 39)

= - 2400 (-ve) ( A)

5) Labour rate Variance (LRV) = Actual Labour hrs (Standard Rate Actual Rate)

= 1600 (40 -39)

= 1600 (+ve) (F)

Labour Efficiency Variance (LEV)= Standard Rate (Standard hrs Actual hrs)

= 40 (1500 -1600)

= - 4000 (-ve) (A)

For Checking LCV = LRV + LEV = 1600 + (- 4000)

Fixed Overhead Variance (FOV) = Standard Fixed Overhead Actual Fixed Overhead

= (25 X 1000) (24000)

= 1000 (F)

MCV = 5950

LCV = - 2400


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Variable Overhead Variance (VOV) = Standard Variable Overhead Actual Variable Overhead

= (15 X 1000) - (16000)

= - 1000 (A)

Variance Favorable AdverseMCV 5950 -MPV 950 -MUV 5000 -LCV - 2400LRV 1600 -LEV - 4000FOV 1000 -VOV - 1000

8550 5000

Total Variance = 8550 5000 = 3550

From the analysis of the total variance it is found that in totality the activity is within control becausethe total variance is 3550 favourable. However it is found that labour cost variance2400 adverse and thisadverse effect is produced because of very high adverseness of labour efficiency variance i.e. Rs.4,000/-However labour rate variance is found 1600 favorable . Also ther e is 1000 adverse variable overhead

variance.

The analysis indicates that the labour efficiency is not up to the level of expectations also variableoverhead expenditure is higher than the normal. In this situation management is suggested to find out theactual reasons on shop floor causing these variance to be adverse and based on fact finding the correctivemeasures can be taken as under :

Improving the quality of supervision on shop floor.

Trained the work on shop floor to work more efficiently

Improving the workers practices by various means like demonstration, creative awareness by slogans , takingdisciplinary actions.

All the activities involving the expenditure of variable overhead variance also will have to be monitoredand corrected by above means.

Various Variances And Corrective Measures In Case Of Adverse Variance

1) Material Cost Variance (MCV):

If material cost variance (MCV) is adverse then it indicates that the there is excess of expenditures other than standard and direct material . This situation can occur if material price variance and / or material usagevariance is adverse if MPV is adverse it indicates that the price per unit of direct material being paid is morethan the standard price and in this situation following corrective measures can be taken:

Total Variance = 3550


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*Vendor analysis

*Credit facilities

*Concession

*Bulk purchase

2) Material Usage Variance (MUV):

In case of material usage variance(MUV) is adverse it indicates that material is not being properly used means there is more wastage in such situation following corrective measures can be taken:

*Check the quality of material

*Size, shape etc of the material

*Check each process causing more waste.

3) Fixed Overhead Variance (FOV) :

In case of Fixed Overhead Variance (FOV) is adverse then excess of expenditure overhead than standard

And therefore the activities involved requiring the expenditure of fixed overhead are to be checked.theactivities like

*managerial activities

*security services

*rent, insurance

4) Revision Variance:

The main process of standard costing is to find out through calculation of variance which activities aregiving favorable variance and which activity gives adverse variation and in a realistic situation some variancesshould be favorable and some should be adverse. The nature of variances depends on correctness of standard cost. However if there is any sudden change in material process or in labour rates then it will bereflected in the variances and the variance might be seen adverse and analysis will not provide the correctdirection. In such a case revision variance is introduced and it is separated out from the main analysis.


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COSTING FORMULAE

MARGINAL COST EQUATION: S V = F + P Contribution : C = S V

P/ V ratio = Break Even Point (Sales) =

Break Even Point (Unit) =

Margin of Safety (Sales) =

Margin of Safety (Units) =

Material Cost Variance (MCV) = Standard cost of material Actual cost of the material Material Price Variance (MPV) = Actual Quantity (Standard Price Actual Price) Material Usage Variance(MUV)= Standard Price (Standard Quantity Actual Quantity) For Checking, MCV = MPV + MUV

Labour Cost Variance (LCV) = Standard Labour Cost Actual Labour Cost Labour Efficiency Variance(LEV) = Standard Rate (Standard Hrs Actual Hrs) For Checking LCV = LRV + LEV

Fixed Overhead Variance (FOV) = Standard Fixed Overhead Actual Fixed Overhead Variable Overhead Variance (VOV) = Std Variable Overhead Act Variable Overhead


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Textile Costing Notes

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