Standard Costing Calculation Examples, Concept, Illustrations, Sample Help Online

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Meaning of Standard Cost

Standard costs are estimated or budgeted cost of producing a good or service under normal conditions. It is used as a basis for comparison with actual costs. Standard cost is developed from time to time so that cost control is maintained. There are various costs like direct labor cost, direct material cost and overhead cost that are incurred while producing a product. To calculate the standard cost of direct materials we need to multiply the standard price of direct materials by the standard quantity of direct material which results in Direct Material Standard Cost.

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Standard Costing Calculation Examples Explanation

Let’s understand the whole concept with help of an example.

Example: Direct Labor-2009
AVg. Labor Hours= 1,960 hours per employee
Avg. Hourly Wage – $10
Number of employees = 47
Total Costs= $92,120
Direct Materials-2009
Material Units=20,000
Avg. Market Price= $20
Total Cost= $400,000
Overhead-2009
Fixed Salary per Manager= $80,000
Number of Managers= 5
Number of Machine hours= 1,000
Hourly Machine rate= $2
Total Cost=$410,000

Assume that the overall demand for the product will increase by 5% and the price and number of units needed will increase by the same amount and number of employees needed increases by 8. Therefore, standard cost is calculated as follows

Direct Labor= 1,960 hrs.* $10/hr* 55 employees= $1,078,000
Direct Material = $21 mkt price* 21,000 units= $441,000
Overhead= ($80,000* 6) + (1,000 hrs.* $2/hr* 6) = $492,000
Total Standard Cost= $2,011,000 cost for the year

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