Variations costs and manufacturing costs



In order to evaluate and analyse the variations, it is necessary to distinguish the element of the cost from which they come and discriminate in:

The Variations in costs, in some cases, come from exogenous causes, that is to say, not controllable by the company. For example, that suppliers increase the costs of the materials or the unions force to increase the salaries (in our country, are also increased by presidential decrees). The variations in quantity are controllable by the company, as well as the majority of the manufacturing costs and also the production capacity and the efficiency.


Variations can be:

Positive: They Represent a decrease or savings in the Standard cost.
Negative: Represents an increase or loss in the Standard cost.
Example: Exercise 26-11, p. 1,190, A. Redondo, General and Higher Accounting Workshop


To find the value of the variations in quantity and cost we proceed in the following way:

The variation in Quantity of Direct Material:
The difference between the Standard quantity and the finished production quantity is multiplied by the Standard cost.

The Variation in Direct Material Cost:
The difference between the Standard cost and the finished production cost is multiplied by the amount of finished production.

Summary in Direct Material:

DIRECT LABOR VARIATIONS: To Find the value of the variations in quantity and cost we proceed in the same way as we have done with the Direct Materials:

The variation in Quantity of Direct Labour:
The difference between the Standard quantity and the finished production quantity is multiplied by the Standard cost.

The Variation in Cost of Direct Labour:
The difference between the Standard cost and the finished production cost is multiplied by the amount of finished production.

Abstract in Direct Labor:


The variations in Manufacturing costs merit a very meticulous examination, since, even if there are positive differences, they can be lost to the company.

Budget Variance:
The Variance in budget will be represented by the difference between budgets and finished production costs.

The Variance in budget refers to all production orders of that period, unless it was calculated for a given order. The reasons for the variation in budget can be several. For example, expenditures have been erroneously budgeted: excess or defect; A particular production was budgeted and this increase or declined. Fixed costs and variable expenditures should Be analysed and the increase or decrease between budgeted expenditures and finished production Be assessed; If there was idle time, among others.

Variation in Efficiency:
To determine the variation in efficiency it is necessary to know the base applied to load the expenses to the production. It Can be based on the cost of Direct Labor, Machine Hours, among others. The proposed example applied the base: Hours of Direct Labour. In this case:

The variation in efficiency will be represented by the difference between the Standard hours charged to the production and the finished hours worked, multiplied by the cost of a Standard hour.

The variation in efficiency can be applied for the whole manufacture or a certain order or production lot. It Represents the saving or loss of «time» calculating for certain production and the actual time spent. In The example we are developing, according to Standard time, 11,700 hours per unit, as 900 units have been produced, will be charged to production 11,700 hours. Finished production Hours worked were 12,020. Therefore, 320 hours were worked for the production carried Out.

Efficiency at work was efficient, negative. It Will Be necessary to determine which department worked more hours than planned and because; Who was responsible for that, among other things.

Variation in Capacity
The variance in capacity will be represented by the difference between «budgeted» hours and finished hours or vice versa, multiplied by the cost of a Standard hour.

You may be wondering why is it positive? Reason: If We assume that the budgeted 11,700 hours represent working on the basis of 97.33777038% of the factory’s capacity, as the hours produced in base 12,020, mean that 100% of capacity has been worked. Check it out, the variations are independent. By finding the deviation of capacity what is sought is to determine if the manufacture work more or less predetermined time. In This deviation we are not interested in whether the production increases or decreases, if not the capacity used. If we work at a higher capacity than expected, it will be beneficial for the company, i.e. positive variation. If you work below the budgeted capacity, it will be bad for the company, so the deviation is negative.

In Order To determine the variation of the finished production in a period related to the manufacturing costs, we reason:

To See if we find the variations we have obtained reason as well:


As stated above, Standard costs imply careful preparation of budgets and strict controls on finished production costs, so that, at the end of a period, we can determine the possible variations in Based on the practical exercise.



Each company knows with precision, its own fundamental objective, to reach a pre-established goal, you can normally traverse various paths, some gather some information, others establish a precise plan by documenting, in order to choose and Travel the safest and fastest way to get the goal set. The greater the importance of the objective, the greater the attention to be sought.

One of the major guidelines of a modern direction, is to be constantly informed and up-to-date in the management methods, in order to implement the most suitable instrument to the demands of the company.

The problem of choosing the best method to achieve the objectives plotted must be a problem treated whenever necessary, therefore given the changing conditions in the business context must be adopted throughout the enterprise and between this the Cost accounting.

The Company to increase the profit, can act in two ways: one increasing the income and the other reducing the costs, the first road is difficult to control, unless it is operated in Monopoly regime, by the other way the cost reduction is much more VI Able.

The Standard Cost system, fundamentally, is an organic instrument for controlling and reducing costs at all levels of management and in all the company’s productive or operational units.

In other words, the standard cost system consists of establishing the unit and total costs of the items to be produced by each production centre, prior to its manufacture, based on the most efficient methods of elaboration and relating with the Given volume of production. These Are objective costs to be achieved through efficient operations.

The essential feature is the use of predetermined or planned costs, as a measure of control for each element of the cost during production cycles. Costs are calculated only once instead of each time a production, order, work or lot phase is started.

If each item of cost is properly controlled, the total cost will be equivalent to the total of the controlled items, the actual costs are compared to the standard numbers, and differences or variations are obtained that are recorded separately in the Accounting, as a result the differences are typified for their investigation and analysis by the administration.

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